Knowledge that Transforms

In this paper, we use academic independent director resignations induced by the introduction of the Regulation 11 prohibiting academics from holding positions in Chinese public companies to examine their contribution to firm value. We document a negative market reaction to the issuance of the Regulation 11 and to the academic director resignations. The negative market reaction to academic director resignations is sizeable and hold when we further control for the influence of director, board, and firm characteristics. We next use heterogeneity in the market response to academic director resignations to study what the market values in academic directors. We find supportive evidence of a monitoring contribution and mixed evidence of advising and networking contributions. Finally, we show that in the two years following the issuance of the Regulation 11, companies with at least one academic director on their board prior to Regulation 11 underperform relative to companies without any academic directors. Overall, our results are consistent with a positive contribution of academic independent directors to firm value.

Recently a new type of institution has emerged, crowd funders. These entities: 1) channel capital to create intellectual property; 2) gather information on project and entrepreneur quality; and 3) gauge demand information directly from individuals to improve the efficiency of capital allocation. Data from crowd funder Kickstarter allows new insights on capital formation and the role of entrepreneurial reputation formation in the venture funding process. This funding method includes all cases where entrepreneurs try yet fail to raise funds, a feature heretofore unavailable to researchers. We find that both positive and negative reputation acquisition significantly change measures of capital raising success.

We assess the link between corporate social responsibility (CSR) and government ownership using a unique sample of privatized firms (PFs) from 41 countries over the 2002 to 2014 period. We find that PFs have, on average, better CSR intensity than other publicly listed firms. Further tests show a nonlinear relation between residual state ownership and CSR intensity that depends on the trade-off between political objectives of the government and profit maximization objectives of private owners. In addition, country-level institutions affect the state ownership–CSR intensity relation, and PFs benefit from higher valuation and lower equity financing costs through improved CSR.

Social media platforms are becoming increasingly important channels for information dissemination. This study examines how microblogging by top executives affects the information environment for listed firms in an emerging market. Using a manually collected data set of Sina Weibo, one of China's most popular and largest social media platforms, we find that a board chair having a Weibo account is associated with the dissemination of more firm-specific information to the capital market. This result holds up to a battery of robustness tests, including an alternative noise-trading explanation and alternative measures of information flows and definitions of Weibo usage. We also show that the relationship between board chairs' Weibo usage and information dissemination is stronger for smaller firms, firms that went public more recently, and firms characterized by less analyst coverage. In addition, Weibo usage primarily disseminates firm-specific news rather than industry news. Finally, we document that institutional trading is an important channel through which private information is incorporated into stock prices. Findings in this study have important implications for the understanding of the role of social media in the dissemination process of corporate information and corporate communication strategy.

We examine whether reputable intermediaries provide valuable certification which help corporate issuers of Islamic bonds lower their cost of capital. Our focus on Islamic bonds is motivated by the fact that besides information risk, investors also face unique Shariah non-compliance risk. Based on a sample of 3462 Islamic bond tranches issued in Malaysia from 2001 to 2014, we find certification by reputable Shariah advisors and Shariah committees is associated with a significantly lower average bond spread, as is information certification by reputable lead arrangers. Our results thus support the certification hypothesis.

We use hand-collected board data around the issuance of two distinct government-led board structure mandates in the U.K. to establish the effect of outside directors on acquirer performance. Increases in outside director representation are associated with better acquirer returns in deals involving listed targets, but not when the target is private. These results are consistent with greater outside director reputational exposure when publicity is high. While we do not advocate mandated board structures, our evidence suggests that the particular diktats we examine were associated with improved acquirer performance in public firm takeovers. We present corroborating evidence from the U.S. around a similar reform period.

We model an investment bank's choice of resource allocation by the probability of acquirers' mergers and acquisitions frequency in the future to theoretically link the role of investment banks to the acquirer returns. Our model predicts the heterogeneity in the quality of advisory services provided by the same investment bank that leads to the heterogeneity in acquirer returns. Such heterogeneity declines as the likelihood of an industry merger wave rises. Controlling for investment bank fixed effects, acquirer fixed effects and potential self-selection bias, we find empirical evidence supporting our hypotheses.

This paper examines whether the stock market considers the firm's reputation established through a history of management earnings forecasting when it evaluates open market repurchase announcements. We refer to this established reputation as the firm's “forecast reputation”. We find that while the stock market considers the firm's “repurchase reputation” (proxied by prior repurchase completion rates), it also considers the firm's forecast reputation established from the accuracy of prior management earnings forecasting, suggesting a spillover effect of forecast reputation. Further, interaction test between the two reputation variables reveals that the market reacts more to the firm's forecast reputation when its repurchase reputation is low. Additional analyses suggest that when a firm announces a share repurchase program for the first time (i.e., when there is no repurchase reputation), investors turn to the forecast reputation within the firm as an alternative source of reputation, on which the credibility of repurchase announcements is assessed. Overall, our study provides evidence that firms establish a reputation in the market through multiple sources of announcements.

This paper investigates the relationship between a CEO's foreign experience and CEO compensation. Our analysis is based on the constituent firms of the UK FTSE 350 index from 1999 to 2015. We find that foreign CEOs and national CEOs with foreign working experience receive significantly higher levels of total compensation compared to similar UK CEOs without such characteristics. The results are robust to the endogenous CEO selection using propensity score matching methods, as well as other modelling approaches. Our results show that pay premiums are attributable to the specialized foreign expertise and foreign networks of CEOs, which stem from foreign experience rather than broader general managerial skills.

Employing 63,464 firm-year observations of 8876 companies in 22 countries from 2000 to 2013, we conduct a series of multiple regression analyses that reveal a significantly positive relationship between board gender diversity and dividend payouts. The empirical results confirm that board gender diversity facilitates corporate governance and consequently promotes dividend payouts. We also show that a good institutional environment may weaken the effect of board gender diversity on dividend payouts. Institutional ownership is positively associated with board gender diversity and that corporate dividend payouts increase when female senior executives have shareholdings. The findings of our analysis are robust after controlling for potential endogeneity concerns.