Working Papers
Political Homophily and Director Appointments (with Yongqiang Chu) SSRN
Political alignment between CEO and director candidates increases the probability of appointment by 5%, even after controlling for other connections. This effect strengthens during periods of heightened political polarization and following CEOs’ exposure to partisan media. CEOs strategically appoint political allies to secure better advisory services during periods of performance deterioration and before acquisitions. Appointing aligned directors yields higher announcement returns when firms have higher advising needs. Lacking effective oversight, these directors command higher pay and retain their seats. Our evidence reveals how political homophily influences board composition and generates meaningful consequences for shareholder value.
The Economics of Connected CEO Hiring (with Yutong Xie and Jin Xu) SSRN
We find that a CEO candidate’s personal ties with a firm’s board significantly increase her probability of being selected by the firm. Firms that hire connected CEOs experience greater performance improvement than those that hire unconnected CEOs, but only when the connections were built through professional interactions. The performance differential is concentrated among firms with severe information asymmetry, high CEO termination risk, and large coordination costs. Further evidence suggests that professional ties help boards find good-fit CEOs, reduce search costs, help CEOs gain more shareholder voting support, and reduce the need for signing bonuses to new CEOs.
Academic Directors: Innovation Advocates in the Boardroom (with Jin Xu and Yutong Xie) SSRN
We show that academic directors significantly increase firms’ innovation activities. Following an academic director’s exogenous departure, the average firm reduces the number of patent applications by 5.8%, and its patent citations decrease by 14%. The relationship between academic directors and innovation is not driven by other board characteristics or PhD CEOs. Investigations into the channels suggest that academic directors hire pro-innovation directors, use forced turnovers and compensation incentives to motivate CEOs, and bring disciplinary expertise to firms.The Ties that Thrive: Audit Committee Affiliated Donations and Financial Reporting Quality (with Alicia Li, Jeffrey Pittman, and Jin Xu)
Our evidence implies that financial reporting quality evident in the frequency and severity of restatements improves when firms donate to charities affiliated with their audit committee members. We find that affiliated donations are likely to be initiated (terminated) when the directors join (leave) the audit committee, suggesting that these donations are strategic. The results are most consistent with the hypothesis that firms leverage affiliated donations to motivate audit committee to tighten their oversight. Reinforcing this evidence, we also document that the association between affiliated donations and financial reporting quality is concentrated among firms with internal control weaknesses and higher litigation risk. Additionally, audit committee members receiving donations work harder, maintain longer tenures, and tend to appoint industry specialist auditors. Collectively, our evidence implies that firms rely on affiliated donations to elicit stricter monitoring of the financial reporting process while audit committee members protect their reputations by imposing tougher oversight.