Bang Dang Nguyen

What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?

Using stock price reactions to sudden deaths of top executives as a measure of expected contribution to shareholder value, we examine the relationship between executive pay and managerial contribution to shareholder value. We find, first, that the managerial labor market is characterized by positive sorting: managers with high perceived contributions to shareholder value obtain higher pay. The executive pay-contribution relationship is stronger for professional executives and for executives with high compensation. We estimate, second, that an average top executive (chief executive officer) appears to retain 71% (65%) of the marginal rent from the firm-manager relationship. We examine, third, how the executive pay-contribution relationship varies with individual, firm, and industry characteristics. Overall, our results are informative for the ongoing discussion about the level of executive compensation. This paper was accepted by Wei Jiang, finance.

Is More News Good News? Media Coverage of CEOs, Firm Value, and Rent Extraction

This paper provides empirical evidence that media coverage of CEOs, a channel of investor recognition, significantly increases firm value, measured by Tobin’s q. The result is robust to alternative econometric methods and checks of causality. Firms with the highest level of CEO media coverage and positive coverage outperform those with the lowest levels by 8% and 7% per year, respectively, in abnormal stock returns. Media coverage also impacts CEO rent extraction through compensation. Subsequent total pay rise is 4.1% above and beyond what CEOs obtain from the increase in firm value that arises due to media coverage.

Out of Sight, Out of Mind: The Value of Political Connections in Social Networks

Using networks of university classmates among corporate directors and U.S. congressmen and the regression discontinuity design of close elections from 2000 to 2008, we identify a significant but widely varying impact of political connections on firm value. Surrounding the election day, connections to powerful senators increase firm value by 8.59%, while connections to elected congressmen decrease firm value by 2.65% on average. Political connections are especially valuable at the state level, in highly regulated and corrupted states, and in small and financially dependent firms. Following elections, firms connected to the winner decrease state activities; meanwhile, their directors tend to serve shorter tenure.

Ownership Structure and Board Characteristics as Determinants of CEO Turnover in French-Listed Companies

This paper investigates whether ownership structure and board characteristics determine CEO turnover in a sample of largest French-listed firms from 1994 to 2001. The results show that CEO turnover is negatively and significantly related to prior accounting and stock performance. Controlling for prior performance, ownership structure and characteristics of boards of directors impact the sensitivity of CEO turnover to prior performance. Firms with blockholders, high government ownership, two-tier boards, and larger boards are less likely to dismiss CEOs for poor performance. Institutional investors and their co-existence with large blockholders, do not impact the sensitivity of CEO turnover to prior performance

When Blockholders Leave Feet First: Do Ownership and Control Affect Firm Value?

This study investigates the effect of ownership and control on firm value using exogenous variation resulting from stock price reactions to the sudden death of individual blockholders. Stock market reactions range from -5% to 4% for inside blockholders as ownership increases and from 0% to -2% for outside blockholders. The difference in market reactions identifies the value of ownership and control while effectively controlling for confounding effects on firm value due to liquidity or anticipated takeover activity. Overall, our results suggest that as ownership increases the beneficial effect of inside blockholders disappears while the beneficial effect of outside blockholders increases.

Sugar and Spice and Everything Nice: What Are Independent Directors Made Of?

We empirically analyze how outside directors and firms choose each other in a sample of 40,585 unique directors associated with 5,246 unique U.S. listed firm. We first provide stylized facts on outside directors and the successful ones. We find that gender, qualifications (MBA), work experience (especially S&P500 firm experience and CEO experience), social network size, experience on board committees, all impact the likelihood of becoming a successful director. Directors of large, complex, volatile and qualitatively reputable firms and of firms with higher levels of institutional ownership are also more likely to become successful directors. Being a member of a more independent board or obtaining the first directorship during a recession act against obtaining a second directorship. Second, we find that firms search for candidates for directorship from older, larger, more complex, more transparent, better governed, and well-performing companies. Third, we document and quantify the impact of five most important factors that determine the two-sided firm-director matching process, namely firm size, firm risk (return and operating performance volatility), stock performance, firm age, and institutional holdings. Overall, our evidence is informative for the workings of the labor market for outside directors.

Directors as Connectors: The Impact of the External Networks of Directors on Firms

The external networks of directors significantly impact firm value and decisions. Surrounding close gubernatorial elections, local firms with directors connected to winners increase value by 4.1% over firms connected to losers. Director network’s value increases with network strength and activities, and is not due to network homophily. Connected firms are more likely to receive state subsidies, loans, and tax credits. They obtain better access to bank loans, borrow more, pay lower interest, invest and employ more, and enjoy better long-term performance. Network benefits are concentrated on connected firms, possibly through quid pro quo deals, and unlikely spread to industry competitors.

Political Connections and Firm Value: Evidence from Close Gubernatorial Elections

Using the regression discontinuity design of close gubernatorial elections in the U.S., we identify a significant and positive impact of the social networks of corporate directors and politicians on firm value. Firms connected to elected governors increase their value by 3.89%. Political connections are more valuable for firms connected to winning challengers, for smaller and financially dependent firms, in more corrupt states, in states of connected firms’ headquarters and operations, and in closer, smaller, and active networks. Post-election, firms connected to the winner receive significantly more state procurement contracts and invest more than do firms connected to the loser.

It's not what you know, it's who you know: CEO‐director social connections and the effectiveness of boards of directors

Purpose – The aim of this viewpoint paper is to discuss the impact of social ties between chief executive officers (CEOs) and board directors.Design/methodology/approach – This is a viewpoint paper, which looks at social ties between CEOs and board directors.Findings – The paper finds that diversifying candidate backgrounds and giving shareholders more power in nominating directors might lead to more independent and more effective boards.Originality/value – The paper discusses the findings of research carried out at Judge Business School, which suggests that a broader selection committee for appointing directors increases the likelihood of an effective, impartial board.

When Blockholders Leave Feet First: Do Managerial Ownership Affects Firm Value?

We investigate whether managerial ownership enhances firm value by exploiting exogenous variation resulting from stock price reactions to blockholder deaths. We find, first, that the average stock price reaction to the sudden death of inside blockholders ranges from -5% for small ownership stakes to 4% for large ownership stakes. The positive and significant relationship between ownership and stock price reactions implies that the beneficial effect of managerial ownership disappears as ownership increases. Second, this relationship is stronger when outside blockholders and inside non-blockholders are used as control groups. Third, we show that stock price reactions to the sudden death of outside blockholders are negatively related to their ownership stake. Our results are robust to controlling for anticipated control activity and various specifications of the tests. Overall our results provide empirical evidence of the incentive and entrenchment effects of managerial ownership.