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Curriculum Vitae
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Research
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Faculty Profile
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Publications Inherited Control
and Firm Performance Abstract. I use data from CEO successions to examine the
impact of inherited control on firms’ performance. I find that firms
where incoming CEOs are related by blood or marriage to a founder or a large
shareholder of the corporation undergo large declines in return on assets and
market-to-book ratios that are not experienced by firms that promote
unrelated CEOs. Consistent with wasteful nepotism I find that declines in
performance are particularly prominent in firms that appoint family CEOs who
did not attend “selective” colleges. Overall, the evidence
indicates that nepotism hurts firms’ performance by limiting the scope
of labor market competition. (American Economic Review, December 2006, Vol. 96,
No. 5, pp. 1559-1588). Inside the Family Firm: The Role of Families
in Succession Decisions and Performance with
Morten Bennedsen, Kasper Nielsen and Daniel Wolfenzon Abstract. This paper uses a unique dataset from Denmark to investigate
the impact of family characteristics in corporate decision making and the
consequences of these decisions on firm performance. We focus on the decision
to appoint either a family or external chief executive officer (CEO). The
paper uses variation in CEO succession decisions that result from the gender
of a departing CEO’s firstborn child. This is a plausible instrumental
variable (IV), as male first-child firms are more likely to pass on control
to a family CEO than are female first-child firms, but the gender of the
first child is unlikely to affect firms’ outcomes. We find that family
successions have a large negative causal impact on firm performance:
operating profitability on assets falls by at least four percentage points
around CEO transitions. Our IV estimates are significantly larger than those
obtained using ordinary least squares. Furthermore, we show that family-CEO
underperformance is particularly large in fast-growing industries, industries
with highly skilled labor force and relatively large firms. Overall, our
empirical results demonstrate that professional, non-family CEOs provide
extremely valuable services to the organizations they head. (Quarterly
Journal of Economics, May 2007, Vol. 122 No. 2, 647-691. The Governance of Family Firms, with Morten
Bennedsen and Daniel Wolfenzon Abstract. The paper highlights that the main governance issue
facing family firms is balancing the benefits associated to having a
controlling family with the challenges this structure imposes on minority
shareholders. Common governance mechanisms are less likely to be effective
whenever control and decision-rights are concentrated around a family. The
chapter emphasizes the crucial role of family governance on the allocation of
resources and reviews recent studies that seek to understand the impact of
family characteristics on firm decisions and performance. The chapter also
discusses some of the important topics for future research (in R. Anderson
and K. Baker (Eds), Corporate Governance, 2010,
(Wiley & Sons). Risk Management
and Firm Value: Evidence from Weather Derivatives, with Hayong Yun Abstract. This paper shows that active risk management
policies lead to an increase in firm value. To identify the causal effect of
hedging and to overcome endogeneity concerns, we
exploit the introduction of weather derivatives as an exogenous shock to
firms’ ability to hedge weather risks. This innovation
disproportionately benefits weather sensitive firms, irrespective of their
future investment opportunities. Using this natural experiment and data from
energy utilities, we find that derivatives lead to higher valuations,
investments and leverage. Overall, our results demonstrate that risk-management
has real consequences on firm outcomes (forthcoming, The Journal of Finance). Research “Capital Structure and Taxes: What Happens When You
(Also) Subsidize Equity?” with Fred Panier
and Pablo Villanueva. Abstract. This paper shows that capital structure
significantly responds to changing tax incentives. To identify the effect of
taxes, we exploit the introduction of a novel tax provision (the notional
interest deduction, or NID) as an arguably exogenous source of variation to
the cost of using equity financing. The NID, introduced in Belgium in 2006,
drastically reduces the tax-driven distortions that favor the use of debt
financing by allowing firms to deduct from their taxable income a notional
interest charge that is a function of equity. Our main findings are four.
First, the NID led to a significant increase in the share of equity in the
capital structure. Second, both incumbent and new firms increase their equity
ratios after the NID is introduced. Third, the largest responses to these
changing tax incentives are found among large and new firms. Fourth, the
increase in equity ratios is explained by higher equity levels and not by a
reduction in other liabilities. The results are robust to using data from
neighboring countries as a control group, as well as, relying on a battery of
tests aimed at isolating the effect of other potential confounding variables.
Overall, the evidence demonstrates that tax policies designed to encourage
the use of equity financing are likely to lead to more capitalized firms. Estimating
the Value of the Boss: Evidence from CEO Hospitalization Events with M. Bennedsen and Daniel Wolfenzon Abstract. This paper shows that CEOs meaningfully affect firm
performance. Using variation in CEO exposure resulting from the number of
days a CEO is hospitalized, we provide estimates of the effect of CEOs on
firm policies, holding firm and CEO matches constant. We have four main
findings. First, CEOs have an economically and statistically significant
effect on profitability, revenue, and investment outcomes. Firms whose CEOs
are hospitalized underperform when their chief executives are sick but
otherwise exhibit similar performance relative to other firms. Second, we
find robust CEO effects for relatively young and highly educated CEOs, and for CEOs in rapidly growing environments,
settings where the value of CEOs actions are arguably highest. Third, we show
that CEOs are unique: the hospitalization of other senior executives does not
have similar effects on performance. Fourth, consistent with the idea that
hospitalizations meaningfully affect CEO potential at the firm level, we find
that even relatively short hospitalizations lead to significant increases in
turnover probabilities. Overall, our findings demonstrate that CEOs are a key
determinant of firm performance, and that the value of CEO succession and
contingency plans is likely to be substantial, revise, resubmit, The Journal of Finance. Competition and
Private Benefits of Control, with Maria Guadalupe Abstract. This paper investigates the impact of competition on
private benefits of control (PBC). To test for the effect of competition on
private benefits, we use two indexes that measure the level of product and
input market anti-competitive regulations. We estimate PBC using the voting premia between shares with differential voting rights.
Using a panel dataset of 586 firms in 16 countries, our main findings are
three. First, within-country increases in the intensity of competition lead
to lower estimates of private benefits of control. Second, competition
significantly reduces the dispersion in private benefits. Third, the
reduction in the level and dispersion of PBC that result from competition are
particularly prominent in weak-rule-of-law countries, in manufacturing
industries and in less-profitable firms. Overall, our results suggest that
product market competition can help in curbing private benefits of control,
revise, resubmit, The Review of
Financial Studies. The Impact of
Acquiring Control on Productivity Abstract. Empirical studies on the importance of control
rights on efficiency are hindered by actual –presumably
efficient– ownership patterns. Finding settings where the right owner
does not own the right asset and where ownership arbitrarily changes is
challenging. In this paper I aim at overcoming these problems by
investigating the elimination of foreign majority ownership restrictions in
Mexico. Specifically, I study the performance of affiliates of multinational
corporations for which (1) ownership restrictions appeared to bind before
they were lifted, and (2) parent ownership increased from minority to
majority as the reform was implemented. Using detailed plant-level
information, I find that multinational control leads to large improvements in
total factor productivity, particularly in industries that rely on
technological innovations from their parent companies. Control is also
associated with higher investment –particularly in technology intensive
forms of production–, and with an improvement in the skill profile of
the labor force. Overall, I interpret the evidence as supportive of the
property rights theory of the firm. Large Shareholders
and Dividends: Evidence From U.S. Tax Reforms Abstract. I investigate whether firms’ dividend policy
is determined by the preferences of their large shareholders. Using exogenous
variation from personal income tax rates I show that dividend payouts
increased (decreased) in years when dividends were less (more)
tax-disadvantaged relative to capital gains, but only for firms whose large
shareholders were affected by these tax reforms. Furthermore, using
ex-dividend day stock price analysis I find that dividend valuation increased
when dividends were less tax-disadvantaged, but only for firms with
individual large shareholders. These results show that personal income tax
rates affect dividend decisions, and provide strong evidence of the existence
of tax clienteles. Do CEOs Matter? with M. Bennedsen, and D. Wolfenzon Abstract. Estimating the value of top managerial talent is a
topic of research that has attracted widespread attention from academics and
practitioners, but testing the effect of chief executive officers (CEOs) on
firm outcomes is challenging. In this paper, we test for the impact of CEOs
on performance by assessing the effect of (1) CEO deaths and (2) deaths of
CEOs’ immediate family members (spouses, parents, children, etc.).
Using a unique dataset from Denmark, we find that CEOs’ (but not board
members’) deaths and deaths in CEOs’ families are strongly
correlated with declines in firm operating profitability, investment, and
sales growth. Our CEO shock-outcome analysis allows us to identify the
personal shocks that are the most (least) meaningful for CEOs. We show that
CEO, firm, and industry characteristics affect the impact of these shocks.
Overall, our findings demonstrate that managers are a key determinant of firm
performance. Work-In-Progress “Economic
Consequences of Changing Organizational Structures: Evidence from the Death
Sentence Clause of the 1935 Public Utility Holding Company Act” “Disappearing Family CEOs.” “Bequeathing the Family Firm,” Joint
with Morten Bennedsen, Margarita Tsoutsoura, and Daniel Wolfenzon. “Partnerships, Corporations, and the New York Stock Exchange (NYSE) Specialists” Joint with Petra Moser. |
Change lives. Change
organizations. Change the world.