Leading Corporations
Organization Capital, Large Startups, and the Dearth of IPOs
Rüdiger Fahlenbrach, Leandro Sanz & René Stulz
NBER Working Paper, May 2026
Abstract:
Many startups in the 2000s have remained private after achieving large valuations, a pattern that funding availability alone cannot explain. We propose that startups relying heavily on organization capital to achieve economies of scale and network effects through digital technologies are more likely to become large private firms than exit earlier via an IPO or acquisition. Using LinkedIn data, we construct a novel measure of organization capital intensity for startups. Exploiting a legal shock that strengthened organization capital protection, we provide causal evidence that organization-capital-intensive startups are more likely to remain private and grow large rather than exit early.
Shadow Shareholders: The Emergence of Collective Investment Trusts as Institutional Owners
Natalya Shnitser
Journal of Corporation Law, forthcoming
Abstract:
This Article traces the growth of "collective investment trusts" (CITs) as institutional investors with the power to influence capital markets and corporate governance while avoiding the glare of U.S. securities laws. While there is extensive scholarship on the rise of institutional investors generally, and mutual funds in particular, such scholarship has overlooked the emergence of CITs as the pooled investment vehicles that have been rapidly replacing mutual fund investments in public and private-sector retirement plans. Drawing on newly collected data, this Article is the first to demonstrate that CITs, which hold over $7 trillion in assets, have accumulated significant stakes in U.S. public companies, including, for example, between 4-5% of the shares of Nvidia, Microsoft, Amazon, and Meta. For such companies, CITs now play two key roles: they invest the employees' retirement savings, and they are increasingly large shareholders in the firms themselves. As such large shareholders, CITs have the power to shape the governance of public companies by voting to elect directors, bringing shareholder proposals, and casting ballots on a host of matters put before the shareholders. Unlike mutual fund managers subject to U.S. securities laws, CIT trustees do not have to disclose publicly how they vote their shares. However, unlike their mutual fund counterparts, CIT trustees that hold retirement assets from the private sector are subject to fiduciary obligations under the Employee Retirement Income Security Act (ERISA), a 1974 law enacted to protect the interests of retirement plan participants. As a result, CIT trustees must make decisions as shareholders in a manner that conforms to the "prudence" and "loyalty" requirements under ERISA, including the ever-changing Department of Labor guidance on the consideration of environmental, social, and governance factors (ESG) in selecting and managing investments. With the rise of institutional shareholders -- including the likes of BlackRock, Vanguard and State Street -- that have become subject to ERISA by establishing CITs, the Article suggests that ERISA is becoming a kind of shadow corporate law.
Investor Reliance on ESG Ratings and Stock Price Performance
Aleksandra Rzeźnik, Kathleen Weiss Hanley & Loriana Pelizzon
Management Science, forthcoming
Abstract:
We exploit a quasi-natural experiment, the change in Sustainalytics' environmental, social, and governance (ESG) rating methodology, which reassesses risk and inverts the rating scale, to examine how reliance on ESG ratings impacts stock returns. The change in the ESG rating influences stocks' returns, but this is due to retail investors' misinterpretation about the change in the ratings scale. Sophisticated investors, such as 13F institutions and short sellers, take advantage of individual investors' blind trust in ratings by taking the opposite side of their trades. Our results highlight the potential for blind reliance on ESG ratings that can generate mispricing and inefficiencies, especially among less informed market participants.
AI and the Nature of the Firm
Alec Litowitz, Nick Polson & Vadim Sokolov
University of Chicago Working Paper, April 2026
Abstract:
Artificial intelligence is a horizontal general-purpose technology that restructures the cost functions of every knowledge-intensive industry simultaneously. We develop a unified Coasian framework for analyzing this transformation, drawing on three of Coase's contributions: the theory of the firm, the Coase conjecture on durable-goods monopoly, and the Coase theorem on efficiency under low transaction costs. Our central argument is that AI operates as a direct solvent on information asymmetry rents, the foundational friction that justifies the existence of large knowledge-economy firms, professional service intermediaries, and high-margin software businesses. Beyond reducing transaction costs, AI automates the directing function, the exercise of agency over resource allocation, that Coase identified as the firm's core rationale. Using Coase's theory of the firm, we show that AI reduces external transaction costs faster than internal coordination costs, predicting a contraction in firm size coupled with an expansion in market-mediated exchange. Through the Coase conjecture, we argue that AI capabilities function as a durable good whose producer competes against its own future price reductions, driving knowledge-processing rents toward zero. Through the Coase theorem, we argue that as transaction costs fall, the initial allocation of knowledge assets becomes less determinative of efficient outcomes, enabling reallocation across firm boundaries. Early empirical evidence from labor market studies supports the theoretical predictions: occupations with high observed AI exposure show weaker projected employment growth, though aggregate displacement remains modest. The framework predicts that the firms which survive and concentrate value will be those with durable advantages in distribution, proprietary data, trust, regulatory position, and judgment, not information processing.
Long-Term Institutional Investors and Executive Compensation
Colin Campbell, Haimanot Kassa & Timothy Trombley
Financial Review, forthcoming
Abstract:
Standard agency theory views would suggest that long-term investors will use long-term CEO compensation to align incentives and promote long-term value maximization. An alternative view is that long-term investors -- who are more able to bear the fixed costs associated with monitoring -- will monitor more heavily than short-term investors, reducing the need for long-term CEO incentives. Our results support this second view. Empirically, the equity (long-term) proportion of CEO pay decreases when the institutional investor horizon increases. This is concentrated among easy-to-monitor firms, coincides with increased shareholder monitoring and less short-term-focused decision-making, and there is no offsetting effect on equity vesting. Shorter-term pay reduces the risk borne by the executive, reducing contracting costs (total compensation).
The (Missing) Relation between Acquisition Announcement Returns and Value Creation
Itzhak Ben-David et al.
Journal of Finance, June 2026, Pages 1265-1320
Abstract:
Cumulative abnormal returns (CARs) computed around acquisition announcements are widely considered to be market-based assessments of expected value creation. We show, however, that announcement returns do not correlate with commonly used and new measures of ex post outcomes. A simple characteristics-based model using standard information known at the announcement date can predict these outcomes reasonably well, yet CAR even fails to capture the predictions from this model. Evidence suggests that information about the stand-alone acquirer dominates CAR, making it virtually impossible to extract deal-related information. We conclude that CAR is an unreliable measure of expected value creation.
Do Managerial Traits Matter in Corporate Lobbying? Evidence from Overconfident CEOs
Shirina Hsin En Lin et al.
Journal of Banking & Finance, July 2026
Abstract:
Do overconfident chief executive officers (CEOs) misjudge the political risks faced by their firms and, as a result, reduce their engagement in corporate lobbying? We examine this question by comparing the lobbying activities of firms led by overconfident CEOs with those led by nonoverconfident peers. Using a sample of 1,369 U.S. firms from 2002 to 2023, we find that overconfident CEOs invest significantly less in corporate lobbying than nonoverconfident CEOs. This finding is robust across a wide range of alternative measures and model specifications. Our identification strategy exploits exogenous CEO turnover events and matched-sample regressions. Cross-sectional analyses further indicate that overconfident CEOs do not view lobbying as a risk-reducing response to political uncertainty. Overall, the results are consistent with CEO overconfidence bias: overconfident CEOs place excessive reliance on their own abilities and underutilize lobbying as a safeguard against political risk.
Navigating policy uncertainty: Politically experienced directors and corporate investment
Demian Berchtold et al.
Journal of Corporate Finance, June 2026
Abstract:
We examine whether politically experienced independent directors (PEDs) can mitigate the harmful investment effects of policy uncertainty. Our results indicate that the presence of PEDs on corporate boards significantly reduces the sensitivity of investment decisions to policy uncertainty. These effects are particularly pronounced for PEDs with presidential committee experience and concentrated in investments characterized by higher irreversibility. Drawing on political risk premium theory and the real options framework, we design several tests to address endogeneity concerns and rule out alternative explanations. Our findings are consistent with PEDs playing an advisory role that helps firms navigate policy uncertainty when making investment decisions.
Whispering Progress: Fear of Automation and Voluntary Disclosure
Jun Oh & Guoman She
Journal of Accounting and Economics, forthcoming
Abstract:
We examine how employee fears of automation-driven job displacement influence corporate disclosure of automation plans. Using a novel measure of local automation fear constructed from cable news transcripts, we document a robust negative relation between automation fear and firms' propensity to provide forward-looking disclosure about automation strategies. This effect strengthens when disclosure conveys incremental information, when automation substitutes for labor, and when firms face greater union exposure or political costs. To strengthen identification, we exploit quasi-natural experiments that induce increases in automation fear, expected union resistance, and political costs, respectively. We also find suggestive evidence that firms increase private communication with investors to compensate for the reduction in public information provision. Overall, our findings shed light on the trade-offs between maintaining transparency and mitigating adverse employee and politician responses in the era of rapid technological advancement.
Antitrust Risk and Voluntary M&A Disclosure
Jun Oh
Journal of Accounting and Economics, forthcoming
Abstract:
I examine how antitrust risk affects firms' voluntary disclosure of mergers and acquisitions (M&As). I hypothesize that firms face a trade-off between the benefits of disclosing M&As to capital markets -- namely, incorporating product market benefits into stock prices in a timely manner -- and the potential antitrust scrutiny such disclosure can invite, which increases the likelihood of agencies challenging the M&A. Using two quasi-exogenous sources of variations in antitrust enforcement that affect the level of antitrust risk, I find a negative relation between antitrust risk and voluntary M&A disclosures in deal press releases, periodic SEC filings, and quarterly earnings conference calls. The effects are concentrated among managers with short-term horizons, where the trade-off is most salient. Further analysis suggests that media coverage is one mechanism through which voluntary M&A disclosure poses antitrust risk. Collectively, my findings establish antitrust risk as a significant determinant of firms' voluntary disclosure.