Irena Hutton

Corporate Policies of Republican Managers

We demonstrate that personal political preferences of corporate managers influence corporate policies. Specifically, Republican managers who are likely to have conservative personal ideologies adopt and maintain more conservative corporate policies. Those firms have lower levels of corporate debt, lower capital and research and development (R&D) expenditures, less risky investments, but higher profitability. Using the 9/11 terrorist attacks and Sept. 2008 Lehman Brothers bankruptcy as natural experiments, we demonstrate that investment policies of Republican managers became more conservative following these exogenous uncertainty-increasing events. Furthermore, around chief executive officer (CEO) turnovers, including CEO deaths, firm leverage policy becomes more conservative when managerial conservatism increases.

Political Values, Culture, and Corporate Litigation

Using one of the largest samples of litigation data available to date, we examine whether the political culture of a firm determines its propensity for corporate misconduct. We measure political culture using the political contributions of top managers, firm political action committees, and local residents. We show that firms with a Republican culture are more likely to be the subject of civil rights, labor, and environmental litigation than are Democratic firms, consistent with the Democratic ideology that emphasizes equal rights, labor rights, and environmental protection. However, firms with a Democratic culture are more likely to be the subject of litigation related to securities fraud and intellectual property rights violations than are Republican firms, whose party ideology stresses self-reliance, property rights, market discipline, and limited government regulation. Upon litigation filing, both types of firms experience similar announcement reaction, which suggests that the observed relationship between political culture and corporate misconduct is unlikely to reflect differences in expected litigation costs.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2106 . This paper was accepted by Brad Barber, finance .

Market Feedback and Equity Issuance: Evidence from Repeat Equity Issues

Higher first-year post-issue returns are associated with a significantly higher probability of follow-on equity issuance over the next 5 years. This result holds when we control for pre-issue returns and other factors known to affect the probability of equity issuance. The result is most consistent with the market feedback hypothesis that a high post-issue return encourages managers to increase the firm’s investment because it implies that, in the market’s view, the marginal return to the project is high.

Accelerated Equity Offers and Firm Quality: Accelerated Equity Offers and Firm Quality

A series of deregulatory reforms has promoted accelerated equity issuance at the expense of adequate time for underwriter and market scrutiny. Today the majority of publicly listed companies can raise equity on a moments notice, but many eligible issuers choose to allow additional time for scrutiny. We hypothesise that issuers with less favourable inside information (i.e. lower quality issuers) prefer to avoid the pre�?issue scrutiny that could reveal their inside information and are therefore more likely to accelerate their offer. We find supportive evidence using measures of stock valuation and earnings quality as proxies for firm quality. The results suggest that investors are slow to capitalise the information embedded in the speed of issuance.

How Much Do Corporate Defendants Really Lose? A New Verdict on the Reputation Loss Induced by Corporate Litigation

Using a comprehensive sample of 83,260 corporate lawsuits filed in U.S. Federal District courts, we extend the results of prior studies investigating market value and reputational losses due to corporate misconduct. This larger sample allows us to examine several alternative explanations for the loss in market value, such as the impact of media coverage, the expectation of procedural expenses and subsequent litigation, and the defendant’s willingness to settle, as well as previously documented factors, such as anticipated penalties and cross-sectional firm characteristics. Our results suggest that, with the exception of securities litigation, this loss in market value can be attributed to these alternative explanations rather than to reputational consequences. We confirm this finding using indirect measures of reputation loss, such as declines in financial performance, changes in the outside directorships held by the defendant firm’s CEO, reductions in institutional ownership, CEO and CFO turnover, and improvements in corporate governance.

Ex-post Bargaining, Corporate Cash Holdings, and Executive Compensation

Although compensation contracts rarely include cash holdings as a factor, we show that high cash holdings can be used by executives in the ex post bargaining over compensation. An increase of cash holdings by 10% of assets corresponds to about

Merger-Motivated IPOs

2.7 million in additional CEO total compensation. In companies with weaker governance, the relation is even stronger. Using awards and losses associated with corporate litigation as exogenous shocks to the firms’ cash, we show that CEO compensation readily responds to these changes in cash holdings, confirming that managers are able to derive personal benefits from excess cash holdings.