Based on a textual analysis of initial public offering (IPO) prospectuses, we obtain a number of important findings regarding the relation between the conservatism in prospectuses, IPO pricing, and subsequent operating and stock return performance. First, prospectus conservatism is positively related to underpricing, with the relation more pronounced for technology than nontechnology firms. Second, for nontechnology IPOs, prospectus conservatism is able to predict the firm’s post-IPO operating performance. Specifically, we find that conservatism is inversely related to the firm’s operating performance for the 3 years following the IPO. However, this predictability is limited to nontechnology IPOs. Finally, we find some evidence that for nontechnology IPOs conservatism is inversely related to the firm’s post-IPO abnormal stock return. We conclude that the conservatism contained in an IPO’s prospectus contains useful information about pricing and subsequent operating and stock return performance. Moreover, prospectus conservatism for nontechnology IPOs deserves more attention from investors.

This study examines the effect of Chief Financial Officers (CFOs) on mergers and acquisitions using a newly constructed CFO Influence Index. Because the perceived influence of CFOs is high in U.K. firms, we use that market for our analysis. We find that influential CFOs as measured by experience, stature, and pay are associated with more deal completions and the pursuit of smaller, domestic targets. High influence CFOs require less time to complete a deal and are able to identify higher quality targets for which they pay less. We also discover that firms with high influence CFOs enjoy greater long-term operating and financial performance post-merger. We conclude that influential CFOs are effective in creating shareholder value during M&A.

This article surveys the influence of research journals on finance doctoral education. Influence is measured by citations from syllabi of finance seminars. A sample of 101 distinct syllabi submitted by 33 finance doctoral programs yields a list of 1,031 articles cited by at least two schools. These 1,031 articles generate 3,273 citations referencing 17 finance, economics, and accounting journals, where multiple citations from a single school are counted as a single citation. The most notable findings are the wide variety of seminar content across finance doctoral programs and the dominance of five finance journals in providing this diverse content.

Recent scandals involving late trading, market timing, and other trading abuses have prompted the SEC to propose changes in the governance of mutual funds. Among these changes are the requirements for an independent chairman and a board consisting of at least 75% independent directors. Using a large sample of mutual fund families for 2002, we find that neither the probability of a fund scandal nor overall fund performance is related to either chair or board independence. Overall, our results question the usefulness of these recently proposed SEC changes in mutual fund governance.

This study examines the extent to which agency-based models and asymmetric information theories explain dividend smoothing around the world. Tests on a cross-section of more than two thousand firms from twenty-four countries show that managers of firms with low market-to-book ratios and less cash engage in greater dividend smoothing. Further, firms with highly-concentrated ownership structure and strong corporate governance smooth dividends less. In addition, managers of firms in industries facing high levels of competition smooth dividends more. We also determine that the extent of legal protections provided to shareholders and the culture of the country in which the firm is incorporated, as well as tax regime, have additional explanatory power for dividend smoothing. Our results are most consistent with the simultaneous presence of agency and information asymmetry effects in the decision to smooth dividends.

This study examines the effects of managerial social capital on investment sensitivity to cash flow and Q. Using a large cross-country sample of companies for the period 1999–2012 and a traditional investment-Q framework, we discover that social capital reduces a firm's dependence on internally generated cash. We find that social capital is positively associated with investment sensitivity to Q. We further determine that social capital positively affects the sensitivity of external finance to Q, while inversely influencing the sensitivity of external finance to cash flow. These effects of social capital are stronger in markets characterized by the weak legal protection of investors. Our findings are robust to alternative model specifications, different variable measurements, and tests for endogeneity.

Using a comprehensive sample of mutual funds and fund families for the period 1992–2004, this study examines the impact of fund management companies’ organizational forms on the level of agency costs within mutual funds. We find that, all else being equal: (1) funds managed by public fund families charge higher fees than those managed by private fund families; (2) public fund families acquire more funds than private fund families; and (3) funds of public fund families significantly underperform funds of private fund families. Collectively, these findings suggest that agency costs are higher in mutual funds managed by public fund families. Our results are consistent with the idea that the agency conflict between the fund management company and fund shareholders is more acute for public management companies because of their shorter-term focus.

In this study we examine the effect of boardroom social capital, defined as the aggregate benefits from the social networks of outside directors, on director compensation. Using a large panel of nine thousand firm-year observations for the period 2007–2013, we find that boardroom social capital is positively priced. Further analysis shows that firms pay a premium for networked directors. Firms that have suffered adverse events such as a bad merger, performance declines, or dividend cuts, pay a higher connection premium. We determine that well-connected directors perform important board roles and hold multiple directorships. Overall, our results are consistent with an efficient contracting explanation for boardroom pay.