This paper provides a theoretical explanation for how risk preferences of a firm’s manager impact a firm’s optimal financing policy and shareholder value. The developed model implies that firms in growing industries are more valuable if they are run by more risk-seeking managers. Similarly, firms operating in declining industries should be run by less risk-seeking managers. Given that a firm’s optimal assets do not depend on the growth opportunities, and that debt is the difference between assets and equity, the model implies that there is a negative (positive) correlation between the riskiness of CEOs’ compensation packages and firms’ financial leverage ratios for firms in growing (declining) industries. This prediction is in stark contrast to economic intuition and prior literature in that less risk aversion normally should increase risk-taking. The empirical analysis generally supports all the model’s implications except those related to firms operating in declining industries.

We find that the magnitude of unique credit default swap (CDS) market information (constructed to be orthogonal to contemporaneous and lagged stock returns) declined after recent reforms that increased the level of post-trade regulatory and market transparency for CDSs. Around the same reforms, the ability of this CDS-unique information to predict future stock returns decreased. These results suggest the CDS market has become less of a “hidden” trading venue for informed investors since central clearing and trade reporting started.

This paper investigates how variations in stock-level leverage lead to dynamic intraday trading behavior and illiquidity transmission across different stocks by utilizing a unique, precise, stock-level margin trading dataset. We document that leveraged investors’ need to meet margin call requirements and liquidity demands due to prior market drops results in subsequent selloffs in otherwise stable stocks, particularly in trading sessions in which there is little new information. This effect exists both within and across different industries and is stronger for stocks with less information asymmetry, better liquidity, higher past stock performance, and even during trading suspension. We also find strong evidence on the volatility spillover induced by leverage. Taken together, such findings suggest that our results are driven by illiquidity contagion instead of information spillover. Our study contributes to the research on asset fire sales, margin trading, and funding liquidity during the intraday deleveraging process in financial market turmoil.

CEOs of retirement age are likely to exhibit a “horizon problem,” whereby they are reluctant to make decisions that are beneficial to the firm in the long term but potentially costly to the CEOs' personal wealth in the short term. We predict that a CEO with strong organizational identification (OI) will be less likely to behave opportunistically. Our results are consistent with our expectation when we examine three types of decisions that reflect the CEO horizon problem. Specifically, we find that retiring CEOs with strong OI are less likely to reduce research and development investments or decrease the firm's commitment to corporate social responsibility. Retiring CEOs with strong OI also behave less opportunistically when making voluntary disclosures; namely, they issue fewer management earnings forecasts in their last year of employment. Our findings indicate that cultivating a CEO's OI can be an effective way to mitigate her horizon problem.

We examine whether a firm's strategic priorities influence its selection of a new CEO and what conditions enable such an appointment to add value to the firm. More specifically, this study investigates the value‐adding effect when prospector firms (i.e., those pursuing a prospector‐type strategy) select a CEO with high social capital. We argue that uncertainty, driven by a firm's strategy, will determine the decision to select a CEO with high social capital; such CEOs can use their networks to mitigate the uncertainty and thus can be valuable to the firm. However, prior research indicates that CEOs with high social capital can engage in behavior detrimental to firm value. To mitigate the potential for this to occur, we assess whether corporate governance can play a role in prospector firms who appoint CEOs with high social capital. Drawing on archival data of CEO successions over a 14‐year period, we find that prospector firms have greater incentives to appoint CEOs with high social capital. We also find that prospector firms who appoint a CEO with high social capital improve their performance. Furthermore, the value‐adding effect of this selection choice is stronger in prospector firms with good corporate governance.

Using panel data on top management characteristics and a management quality factor constructed using common factor analysis on individual management quality measures, we analyze the relation between top firm management quality and corporate innovation input and output. We show that top management quality is an important determinant of corporate innovation, with individual aspects of management quality affecting innovation in younger and older firms differently. Further, firms with higher top management quality engage in more risky (“explorative”) innovation strategies. Finally, hiring more and higher-quality inventors is an important channel through which firms with higher management quality achieve greater innovation output.

Using brokerage mergers and closures as two sources of exogenous shock to analyst coverage, this study explores the causal effect of analyst coverage on ex ante expected crash risk as captured by the options implied volatility smirk. We find a significant increase in a firm's ex ante expected crash risk subsequent to an exogenous drop in analyst coverage; this positive effect is stronger for firms initially receiving less coverage. Further, we find analysts' ability matters to investors' assessment of future crash risk. Specifically, we find the impact is more pronounced for the coverage terminations of analysts with more firm-specific or general experience, with greater access to resources, or whose prior forecasts are more accurate than those of their peers. Overall, our results suggest that investors in the options market do recognize analysts as important information intermediaries and monitors and, thus, that analyst coverage influences the underlying stock's expected crash risk.

Taking advantage of the institutional difference in capture between local and non-local media in China, we examined the association between media capture and post-earnings announcement drift (PEAD). Using both portfolio and regression analyses, we found that, for the same firms, non-local media coverage is negatively associated with PEAD; however, there is no association between local media coverage and PEAD, except for non-state-owned firms. Given that in China, non-local media are less captured or more independent than local media, the negative association observed for non-local media coverage can be interpreted as an indication that media independence plays a role in reducing PEAD or improving informational efficiency in the stock market.