This paper investigates how managerial expertise—specifically, industry expertise—affects firm value through divestiture. Using CEOs’ managerial experiences in industries throughout their careers as a measure of their industry expertise, I find that CEOs in diversified conglomerates are more likely to divest divisions in industries in which they have less experience. This finding is consistent with CEOs who divest such divisions in order to refocus on those divisions in which they have specialized—that is, to achieve a better match between their expertise and their firms’ retained assets. Firms that divest for a better CEO-firm match experience significant improvements in operating performance, as well as significant abnormal stock returns that persist for an average of three years following a divestiture. Further, among firms that divest for a better match, those firms with more experienced CEOs realize greater gains in firm value. In contrast, divestitures that increase corporate focus, but do not improve the expertise-asset match, do not lead to long-run increases in firm value.

Abnormal returns earned by target firms at the time of initial acquisition announcements are related to form of payment, degree of resistance, and type of offer. Results indicate that interdependence among these characteristics is important. Previous research suggests that tender-offer targets earn higher abnormal returns than merger targets. After controlling for payment method and degree of resistance, however, the difference in abnormal returns between tender offers and mergers is insignificant. Resisted offers are associated with insignificantly higher returns than unresisted offers. Abnormal returns associated with cash offers are significantly higher than those associated with stock offers.

Executives trade more profitably and opportunistically over the course of the tenure of independent directors (IDs). IDs’ increased connections with and hence allegiance to executives are likely the channel through which ID tenure can affect executive trading. Executive opportunism is mitigated by disciplinary factors that include the presence of a firm’s internal trading policy, blockholders, and IDs with legal expertise as well as the risk of shareholder-initiated derivative lawsuits. These results point to an association between long-tenured IDs and weakened corporate governance.

This paper develops and tests a new theoretical explanation for stock repurchases. Investors may disagree with the manager about the firm's investment projects. A repurchase causes a change in the investor base as investors who are most likely to disagree with the manager tender their shares. Therefore, a firm is more likely to buy back shares when the level of investor-management agreement is lower, and agreement improves as a consequence. Moreover, dispersion of opinion among investors cannot explain repurchase activity once the stock price and investor-management agreement are controlled for. Overall, the evidence is consistent with firms strategically using repurchases to improve alignment between management and shareholders.

We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover.

We examine the extent to which deferred vesting of stock and option grants (deferred pay) helps firms retain executives. To the extent an executive forfeits all deferred pay if they leave the firm, deferred vesting will increase the cost (to the executive) of an early exit. The impact of deferred pay on executive retention, a key ingredient for firms to create shareholder value is hence an important empirical issue. Using pay duration proposed in Gopalan et al. (2014) as a measure of the extent of deferred equity, we find that CEOs and non‐CEO executives with longer pay duration are less likely to leave the firm voluntarily. The talent retention role of deferred pay is mitigated by performance‐vesting provisions and signing bonuses offered by industry peers. Moreover, we also find that voluntary turnover is less sensitive to pay duration for executives who are perceived to be more talented and have more firm‐specific skills. Overall, our study highlights a strong link between compensation design and turnover of top executives. It suggests that firms take into account the need for retaining managerial talent in designing executive compensation.

We examine how stock liquidity affects acquisitions. We hypothesize that liquidity enhances acquirer stock as an acquisition currency, especially when the target is relatively less liquid. As hypothesized, we find that more liquid firms have a greater likelihood of making stock acquisitions. Further, the difference in stock liquidity between acquirer and target firms increases payment with stock, reduces acquisition premiums, and improves acquirer announcement returns in equity deals. Consequently, firms take steps to improve stock liquidity prior to stock acquisitions. We use policy initiatives as exogenous shocks to firm liquidity to show that liquidity effects on acquisitions are plausibly causal.