Ronald W Masulis

UNSW Sydney | UNSW · School of Banking & Finance

Hand-collecting credit line drawdowns that firms classify as long-term debt, we first document how long-term drawdowns rise with high investment needs or weak external capital market conditions. Nearly all drawdown proceeds finance long-term investment, including M&A activity. Unrated and lower-rated firms rely more on long-term drawdowns than high...

We document a novel strategic motive for family business groups to utilize their internal capital markets (ICMs) during financial crises. We find that crisis-period group ICM activity is targeted toward exerting product market dominance over standalone rivals. Groups make significant post-crisis gains in market share that are concentrated among aff...

Research Question/Issue This study examines whether private benefits of control, as measured by corporate philanthropic activities, distort corporate financing and investment decisions. Research Findings/Insights We find that corporate giving represents a private benefit of control that distorts corporate investment and financing activity, consist...

We study how the existence of important production contracts affects the choice of chief executive officer (CEO) compensation contracts. We hypothesize that having major customers raises the costs associated with CEO risk-taking incentives and leads to lower option-based compensation. Using industry-level import tariff reductions as exogenous shock...

Boards are crucial to shareholder wealth. Yet little is known about how shareholder oversight affects director incentives. Using exogenous shocks to institutional investor portfolios, we find that institutional investor distraction weakens board oversight. Distracted institutions are less likely to discipline ineffective directors with negative vot...

Using data from 44 countries, we document a new channel through which a family business group’s internal capital market supports its members. We find that groups use internal capital to incubate difficult-to-finance projects, making it feasible for them to rapidly scale up, thus facilitating their initial public offering (IPO) market access. This I...

The Society for Financial Studies (SFS) is a global, nonprofit academic society in finance. It owns and runs three academic journals: (1) the Review of Asset Pricing Studies, (2) the Review of Corporate Finance Studies, and (3) the Review of Financial Studies. It also organizes two annual academic conferences: (1) the SFS Cavalcade Asia-Pacific and...

This article surveys the recent literature on boards of directors and the interplay between director incentives and CEO incentives. The primary focus is on how the incentives and other characteristics of directors, boards, and CEOs interact to affect firm performance. The article reviews the recent evidence documenting a causal relationship between...

The Society for Financial Studies (SFS) is a global, nonprofit academic society in finance. It owns and runs three academic journals: (1) the Review of Asset Pricing Studies, (2) the Review of Corporate Finance Studies, and (3) the Review of Financial Studies. It also organizes two annual academic conferences: (1) the SFS Cavalcade Asia-Pacific and...

The Society for Financial Studies (SFS) is a global, nonprofit academic society in finance. It owns and runs three academic journals: (1) the Review of Asset Pricing Studies, (2) the Review of Corporate Finance Studies, and (3) the Review of Financial Studies. It also organizes two annual academic conferences: (1) the SFS Cavalcade Asia-Pacific and...

We study a widespread yet under-explored corporate governance phenomenon: the pledging of company stock by insiders as collateral for personal bank loans. Utilizing a regulatory change that exogenously decreases pledging, we document a negative causal impact of pledging on shareholder wealth. We study two channels that could explain this effect. Fi...

We examine the potential for management-worker alliances when employees have substantial voting rights, and how such alliances affect the balance of power between managers and shareholders. We find that substantial employee voting rights exacerbate the manager-shareholder conflicts. Specifically, they entrench incumbent managers and allow them to p...

We investigate the effects of target initiation in M&As. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA...

We provide new evidence on the value of independent directors by exploiting exogenous events that seriously distract independent directors. Approximately 20% of independent directors are significantly distracted in a typical year. They attend fewer meetings, trade less frequently in the firm’s stock, and resign from the board more frequently, indic...

Revised Name: How valuable are independent directors? Evidence from external distractions

We investigate how seasoned equity offerings (SEOs) by issuers with large customers affect both trading partners' market values and the relationship's health. We hypothesize that SEOs reveal adverse information about an issuer's major customers and find that issuers and their large customers experience negative returns on SEO announcements. These r...

We provide novel evidence on the effectiveness of mandated changes in Russian transparency and disclosure (henceforth T&D) rules in boosting shareholder welfare. We focus on the staggered implementation of these T&D reforms initiated in 2002 and implemented during 2003-07. Using difference in difference method, we find that the reforms improved ear...

Based on U.S. 10-K filings, we investigate the use of lines of credit as sources of long-term finance. We find that long-term debt representing drawdowns of credit lines constitutes 11% of a typical listed firm’s book value of assets. Consistent with credit lines serving as liquidity buffers and financing sources of last resort, long-term drawdowns...

We investigate competition between traditional stock exchanges and new dark trading venues using an important difference in regulatory treatment. Securities and Exchange Commission required minimum pricing increments constrain some stock spreads, causing large limit order queues. Dark pools allow some traders to bypass existing limit order queues w...

Prior literature posits that corporate governance reforms usually boost firm’s operating performance as well as market’s valuation. Using a natural experiment framework, the paper provides new evidence of a differential effect of corporate governance (henceforth, CG) reform on firm’s operating performance (e.g., EBIT/Asset) and market valuation (e....

In many economies around the world, new firm financing often occurs through IPOs affiliated with existing public firms, thereby propagating business groups. Using a global dataset, we show this funding structure helps groups expand, while still maintaining control over existing members. To support this on-going need to establish new firms, groups u...

We compile the most extensive hand collected data set on all forms of M&A litigation in the U.S. to study the effects of lawsuit jurisdictions during a sample period (1999 and 2000) of the Fifth Merger Wave, a period characterized by an abundance of friendly one-bidder deals and the near demise of the hostile offer. We find that only about 12% of a...

Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of lo...

Agency theory and optimal contracting theory offer competing views of corporate philanthropic activities. Testing these competing theories, we find that the choice and level of corporate giving is positively associated with CEO personal ties to charities and is negatively associated with the strength of corporate governance. Furthermore, corporate...

Finance Keynote: Professor Ron Masulis (University of New South Wales) “The Effects of Board Reputation on Independent Directors”

We find a large body of evidence that independent director reputation incentives can vary across directors and can significantly influence important board decisions and firm outcomes. Firms with a greater proportion of independent directors where the board is one of their most prestigious are associated with a lower likelihood of firm actions known...

We study reputation incentives in the director labor market and find that directors with multiple directorships distribute their effort unequally according to the directorship’s relative prestige. When directors experience an exogenous increase in a directorship’s relative ranking, their board attendance rate increases and subsequent firm performan...

Despite recent evidence on the benefits of group affiliation, the channels through which family business groups support members remain relatively unexplored. Combining two unique datasets of IPO owner identities and group organizational structures across 44 countries, we show that internal group capital facilitates access to public equity markets b...

This study investigates deal initiation in the context of mergers and acquisitions. We investigate how bidder and target initiated merger offers differ. Our analysis reveals that target financial or economic weakness, target financial constraints and economy wide shocks are important motives for target-initiated deals. We also find that average bid...

We compile the most extensive hand collected data set on all forms of MA no target lawsuit is filed in Delaware during our sample period. Finally, we find that while jurisdiction does not significantly affect settlement rates or the consideration paid upon settlements, litigation challenging controlling shareholder squeeze-outs is more likely to se...

We explore the determinants of compensation gaps between a firm’s CEO and its other top executives, and compare the ability of two competing optimal contracting theories, namely tournament theory and productivity theory, to explain the cross sectional variability in these gaps across firms. We find little evidence that firms design their executive...

In this paper we show that dual-class shares can be an answer to agency conflicts rather than the result of agency conflicts. When a firm issues voting shares to raise funds, an incumbent manager's control rights are diluted. This increases the risk that an incumbent could lose control of the firm and therefore, could lose the associated benefits o...

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger & acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to li...

Using market microstructure data, we study the determinants of the buying/selling pattern around seasoned equity offerings (SEOs) and their effect on underpricing. We find that the trading pattern around SEOs is slightly positive before the issue date and heavily negative after the SEO, and this pattern is distinctly different from what has been in...

Using a comprehensive sample of U.S. mergers and acquisitions (M&A) bids over 1990-2008, we document that top market share law firms are associated with a number of important bid outcomes and characteristics. Top bidder law firms are associated with significantly higher offer completion rates than other bidder law firms. In contrast, top target law...

Using a comprehensive sample of U.S. mergers and acquisitions (M&A) bids over 1990-2008, we document that top market share law firms are associated with a number of important bid outcomes and characteristics. Top bidder law firms are associated with significantly higher offer completion rates than other bidder law firms. In contrast, top target law...

The reputations of venture capital firms that operate in a highly fragmented private equity industry are examined in several recent studies, and this evidence is further developed in this article. The relations of a large number of suggested venture capitalist (VC) reputation measures to the probability of future successful initial public offers (I...

The generally weak correlation between board independence and firm performance is a major empirical puzzle. One possible explanation is that director independence alone is not enough. To explore this possibility, we examine the full employment histories of independent directors at S&P 1500 companies between 2000 and 2008. We define an independent d...

We use the 2003 NYSE and NASDAQ listing rules for board and committee independence as a quasinatural experiment to examine the causal relations between board structure and CEO monitoring. Noncompliant firms forced to raise board independence or adopt a fully independent nominating committee significantly increased their forced CEO turnover sensitiv...

Corporate governance is on the reform agenda all over the globe. This paper shows that restrictions on the issuance of non-voting shares may cause managers who own equity in the firm to under-invest. When a firm issues voting shares to raise capital for new investment, there is a dilution in the manager's ownership. This increases the risk to the m...

We examine the relation between brokerage firm research coverage and their equity ownership in IPO issuers due to earlier venture investments. A major concern of investors and regulators is that combining these activities can compromise the accuracy of analyst reports given brokerage firm incentives to support IPOs of issuers in which they are vent...

We document the frequent use of lockup agreements in seasoned equity offerings (SEOs), and examine the determinants of their use, duration, and early release. From 1996 through 2006, 93.8% of all SEOs included lockups, which is comparable to the 96.6% lockup rate for IPOs during the same period. The likelihood of an SEO lockup and its duration both...

We explore the determinants of the compensation gaps between the CEO and other senior executives by comparing two competing theories based on optimal contracting, namely tournament theory and productivity theory. We find little evidence that firms design their executive compensation policies in manner consistent with tournament theory. Our stronges...

For financial intermediaries that operate in a highly fragmented industry, such as venture capital (VC) firms, reputation is highly valuable in building credibility with entrepreneurs and investors and enhancing business relationships. A strong reputation benefits both a VC firm’s investors and principals and its portfolio companies by making exits...

We examine the expected economic benefits of mergers and acquisitions. We conclude that both signaling and revelation biases are responsible for the commonly reported finding that on average takeovers are harmful to acquirer shareholder wealth. After accounting for these two biases that lead to a price fall on announcement of 18.9% ($563.9 million)...

We examine the benefits and costs associated with foreign independent directors (FIDs) at U.S. corporations. We find that firms with FIDs make better cross-border acquisitions when the targets are from the home regions of FIDs. However, FIDs also display poor board meeting attendance records, and firms with FIDs are more prone to commit intentional...

Using a dataset of 28,635 firms in 45 countries, this study investigates the motivations for family-controlled business groups. We provide new evidence consistent with the argument that particular group structures emerge not only to perpetuate control, but also to alleviate financing constraints at the country and firm levels. At the country level,...

This study investigates whether financial intermediaries (FIs) participating in the IPO process play a significant role in restraining earnings management (EM). Specifically, we examine whether EM around IPOs is negatively related to investment banks (IBs) and venture capital (VC) investor reputations. In general, we do not find evidence that VCs a...

We analyze spillover effects of supplier equity financing decisions to assess the importance of major trading relationships in creating interdependent valuation effects. We find supplier issuance decisions have important negative spillover effects for large customers, which are more pronounced as information asymmetry or economic dependence of supp...

This study explores the effects of local director labor markets on the board structure of nearby firms. We examine whether firms are able to attract more independent directors to their boards when a larger pool of prospective directors (officers and directors of other firms, financial institutions and universities) is located near the firm’s headqu...

Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of lo...

institutions We would like to thank Gennaro Bernile and seminar participants at the University of Miami and South Florida and the 2007 Financial Management Association Meetings, the CIFC conference in Chengdu for their insightful comments. We gratefully acknowledge the data provided by I/B/E/S. Any errors remain our responsibility. Equity ownership...

Using a sample of 4,809 IPOs from 42 countries this study investigates the effect of group affiliation on the IPO process. At the firm level, we find that business group firms incur lower costs of going public relative to independent firms. This is consistent with the argument that business groups leverage their reputation and internal capital to p...

We examine the creation and subsequent loss of expected economic benefits in mergers and acquisitions. By studying failed bids along with successful ones and analyzing acquirer and target abnormal returns using a new approach, we document two important findings. First, on the announcement of a failed acquisition, the combined value of the acquirer...

Agency theory and optimal contracting theory posit opposing roles and shareholder wealth effects for corporate inside directors. We evaluate these competing theories using the labor market for outside directorships to differentiate inside directors. Firms with inside directors holding outside directorships have better operating performance and mark...

This study compares CEO employment contracts across two common law countries: the United States and Australia. Although the regulatory regimes of these jurisdictions enjoy many comparable features, there are also some important institutional differences in terms of capital market, tax, and regulatory structures, which are discussed here. Debate has...

We investigate the corporate governance of venture capital (VC) backed IPOs that enter into strategic alliances. Startups can have alliances with outside strategic partners and with parents of corporate VCs (CVCs), who primarily invest in startups for strategic reasons. Both CVCs and outside strategic alliance partners can influence an IPO firm’s c...

Using market microstructure data, we study the determinants of the buying/selling pattern around seasoned equity offerings (SEOs) and their effect on underpricing. We find that the trading pattern around SEOs is slightly positive before the issue date and heavily negative after the SEO, and that this pattern is generated by underwriters’ market-mak...

We investigate the corporate governance of venture capital (VC) backed IPOs that enter into strategic alliances. Startups can have alliances with outside strategic partners and with parents of corporate VCs (CVCs), who primarily invest in startups for strategic reasons. Both CVCs and outside strategic alliance partners can influence an IPO firm’s c...

Using a comprehensive dataset of 28,039 firms in 45 countries, this study investigates the motivations for family-controlled business groups, focusing on the question of how such groups are able to attract minority shareholders and allay their concerns about being expropriated. We argue that minority shareholders co-invest with group controlling ow...

This study explores the effects of local director labor markets on the board structure of nearby firms. We examine whether firms are able to attract more independent directors to their boards when a larger pool of prospective directors (officers and directors of other firms, financial institutions and universities) is located near the firm’s headqu...

We examine the association of a venture capital (VC) firm’s reputation with the post-IPO long-run performance of its portfolio firms. We find that VC reputation, measured by the past market share of VC-backed IPOs, has significant positive associations with long-run firm performance measures. While more reputable VCs initially select better quality...

Private equity has reaped large rewards in recent years. We claim that one major reason for this success is due to the corporate governance advantages of private equity over the public corporation. We argue that the development of substantial derivative contracts and trading has significantly weakened the governance of public corporations and has c...

This study explores the effects of local director labor markets near firm headquarters locations on board structure. We examine whether firms are able to attract more independent directors to their boards when a larger pool of prospective directors (officers and directors of other firms, financial institutions and universities) is located near the...

Using a sample of U.S. dual-class companies, we examine how divergence between insider voting and cash flow rights affects managerial extraction of private benefits of control. We find that as this divergence widens, corporate cash holdings are worth less to outside shareholders, CEOs receive higher compensation, managers make shareholder value-des...

We analyze financial contracting in start-ups backed by corporate venture capitalists (CVCs). CVCs' strategic goals can economically hurt or benefit the start-ups, depending on product market relationships between start-ups and CVC parents. Empirically, start-ups receive funding from both complementary and competitive CVC parents. However, start-up...

We analyze the effects of venture capital (VC) backing on profitability of private firm acquisitions. We find VC backing leads to significantly higher acquirer announcement returns, averaging 3 percent, even after controlling for deal characteristics and endogeneity in venture funding. This leads us to investigate whether some VCs have interests wh...

We analyze financial contracting in start-ups backed by corporate venture capitalists (CVCs). CVCs' strategic goals can economically hurt or benefit the start-ups, depending on product market relationships between start-ups and CVC parents. Empirically, start-ups receive funding from both complementary and competitive CVC parents. However, start-up...

Preliminary version. Do not quote * The authors would like to thank Joseph Fan, Jie Gan, Gloria Tian and participants at the HKUST Summer Symposium of Family Business Research for the valuable suggestions. We are also very grateful to Karl Lins and Yupana Wiwattanakantang for sharing their emerging market and Thai group data for verification purpos...

Flotation costs represent a significant loss of capital to firms and are positively related to information asymmetry between managers and outside investors. We measure a firm's information asymmetry by its accounting information quality based on two extensions of the Dechow and Dichev [2002. The quality of accruals and earnings: the role of accrual...

We examine IPOs of startups backed by corporate venture capitalists (CVCs) and the propensity of CVC parents to establish strategic alliance with these startup firms. We investigate the differences in the governance structures of venture capital (VC) backed IPO firms. A major difference in objectives between CVCs and traditional venture capitalists...