Corporate Experience
Do bank CEOs learn from banking crises?
Gloria Yang Yu
Journal of Financial Economics, April 2025
Abstract:
Does the early-career exposure of bank CEOs to the 1980s savings and loans (S&L) crisis affect the outcomes of banks they subsequently managed? We measure the S&L crisis exposure by the bank failure rate in the states where CEOs worked during the S&L crisis. Armed with this measure, we find that banks managed by CEOs with higher S&L crisis exposure took on less risk and that these banks better survived the financial crisis of 2008. In particular, CEOs adjusted risk attitudes in areas causing the S&L crisis: their more intense crisis experience reduced banks’ interest rate risk, exposure to risky financial innovation and credit risk. We establish the causal interpretation of the findings by evaluating the impact of crisis exposure via CEO hometown states and exploiting quasi-exogenous turnovers due to CEO retirement. Overall, CEOs learned from the past industry crisis which helped curtail their institutions’ risk exposures and enhance later crisis performance.
Layoff Rigidity as the Cost of Employee-Related CSR
Daniel Keum
Columbia University Working Paper, December 2024
Abstract:
Studies differ on whether corporate social responsibility (CSR) constrains or enables firms to undertake strategically necessary yet socially disruptive actions, as CSR can both provide reputational insurance and create perceptions of hypocrisy. We show that high-CSR firms receive press coverage with more negative sentiment and undertake fewer layoffs and divestitures in response to unexpected negative industry shocks. This CSR-induced rigidity increases the persistence of low performance. Our findings highlight how CSR can create a tradeoff between employee-level productivity benefits and corporate-level rigidity costs, presenting a more cautious and balanced business case for CSR. More broadly, our study cautions that enfranchising employees and other stakeholders can create rigidity and amplify downside risks, particularly when industry disruptions require reconfiguring existing stakeholder relations, providing insights into when and how to design firm social efforts.
Did Board Gender Quotas Break the Glass Ceiling in Europe?
David Matsa & Amalia Miller
AEA Papers and Proceedings, forthcoming
Abstract:
Nine European countries adopted gender quotas for companies' boards of directors between 2005 and 2021, before the European Parliament adopted an EU-wide quota in 2022. Using 25 years of data, we estimate the quotas' effects on female shares of corporate directors and senior executives of large public companies. We find that while the female share of nonexecutive directors increased by 20 percentage points within six years after a quotas' adoption, women's representation among CEOs or other senior executives hardly changed. These results suggest that policymakers interested in increasing gender diversity among senior executives might need to consider more targeted policies.
CEO Hometown Preference in Corporate Environmental Policies
Wei Li, Qiping Xu & Qifei Zhu
Management Science, forthcoming
Abstract:
We exploit within-firm variations in plant-level toxic releases to examine the effect of managerial hometown preference on corporate environmental policies. We find that pollution levels are about 30% lower for plants located near chief executive officers’ (CEOs’) hometowns. This reduction is achieved through resource-intensive pollution control efforts, including source reduction and waste management activities. Analyses using CEO turnover provide causal inferences. Local residents benefit from CEO hometown pollution reduction as localities hosting more hometown plants experience improved environmental conditions and better residential health outcomes. On the other hand, some evidence suggests that CEOs’ hometown preference is related to agency frictions. Overall, our findings reveal the impact of CEOs’ personal motivations on corporate pollution dynamics and their consequential effects on the well-being of local communities.
Partisan regulatory actions: Evidence from the SEC
Vivek Pandey, Xingyu Shen & Joanna Shuang Wu
Journal of Accounting and Economics, forthcoming
Abstract:
We study the influence of political partisanship in SEC investigations and AAER enforcement actions against financial misconduct. We find that the SEC is more likely to launch an investigation against a firm that is misaligned with the agency’s political ideology than for other firms. The likelihood of an AAER appears unaffected by political misalignment, but once named in an AAER, a misaligned firm faces harsher penalties than other firms. We find evidence that collectively points to potential misallocation of scarce enforcement resources due to partisanship: conditional on investigation, misaligned firms are less likely to receive an enforcement action, and conditional on misreporting, non-misaligned firms are less likely to be investigated.
Revisiting Board Independence Mandates: Evidence from Director Reclassifications
Donald Bowen & Jérôme Taillard
Review of Finance, forthcoming
Abstract:
We provide causal evidence on the effects of mandated board independence. We compare firms that replace existing non-independent directors to firms that retain these directors by reclassifying them as independent. Reclassification eligibility, being largely predetermined, offers quasi-exogenous variation in compliance strategies. We show that firms required to replace insiders perform worse post-mandate, driven by increased operational costs and reduced labor efficiency. Boards of non-reclassifying firms retain fewer former employees and replace them with directors more likely to join monitoring-focused committees, emphasizing the shift from advising to monitoring. Overall, these findings suggest that firm-specific director expertise contributes materially to performance and is consistent with pre-mandate board compositions optimized to balance benefits of enhanced monitoring against costs of reduced advisory capacity. We rule out alternative explanations, including adjustment costs due to director turnover and co-option. Our study underscores the importance of allowing firms flexibility in governance structures and cautions against uniform mandates.
The real and financial effects of internal liquidity: Evidence from the Tax Cuts and Jobs Act
James Albertus et al.
Journal of Financial Economics, April 2025
Abstract:
The Tax Cuts and Jobs Act unlocked as much as $1.7 trillion of U.S. multinationals’ foreign cash. We examine the real and financial response to this liquidity shock and find that firms did not increase capital expenditures, employment, R&D, or M&A, regardless of financial constraints. On the financial side, firms paid out only about one-third of the new liquidity to shareholders and retained half as cash. This high retention was not associated with poor governance. The high propensity to retain the liquidity shock as cash, even among well-governed firms with limited financial constraints, is difficult to reconcile with existing theory.
Not in my homeland: Immigrant CEOs and the geography of corporate social irresponsibility
Juan Bu et al.
Strategic Management Journal, forthcoming
Abstract:
This study examines how immigrant CEOs influence the geography of multinational enterprises' (MNEs) corporate social irresponsibility (CSI) incidents. Building on place attachment theory and social capital theory, we theorize that immigrant CEOs have strong psychological attachment to and social capital in their homeland countries, which could reduce the occurrence and media disclosure of their MNEs' CSI incidents in those countries. Moreover, this effect will be further enhanced if the CEO emigrates as an adult, if the focal firm has a higher sustainability rating, and if the CEO's homeland country has lower press freedom. A difference-in-differences analysis using a propensity score-matched sample of MNEs from the US S&P 500 during the 2007–2020 period supports our arguments.