Rachel M. Hayes

Segment Reporting to the Capital Market in the Presence of a Competitor

In this paper we model a firms choice of how finely to report its segmental performance, given that its disclosures will be observed by both a rival firm and the capital market. We find that when competition with the rival is sufficiently severe, the firms value is highest when its privately-observed signals are sufficiently similar and it discloses these signals as separate segments. In this case the capital market becomes better informed yet the rival firm learns very little about where to allocate its capital. Consequently, in equilibrium, only firms with sufficiently similar results from their different activities will choose to report them as separate segments; firms with disparate results will aggregate them together into a single reported segment.

Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance

Recent research suggests that implicit incentive contracts may be based on performance measures that are observable only to the contracting parties. We derive and test implications of this insight for the relationship between executive compensation and firm performance. If corporate boards optimally use both observable and unobservable (to outsiders) measures of executive performance and the unobservable measures are correlated with future firm performance, then unexplained variation in current compensation should predict future variation in firm performance. Further, compensation should be more positively associated with future performance when observable measures are less useful for contracting. Our results are consistent with these hypotheses.

The Roles of Performance Measures and Monitoring in Annual Governance Decisions in Entrepreneurial Firms

This paper analyzes annual corporate governance decisions at firms making initial public offerings (IPOs) of common stock between 1996 and 1999. Our objective is to examine relations between firms’ corporate governance decisions and the informativeness of available measures of managerial performance. We consider financial measures such as earnings and stock return, as well as direct monitoring. We collect a sample of IPO firms from the manufacturing, Internet, and technology (non‐Internet) industries, and examine how the use of various performance measures in annual compensation grants and turnover decisions varies with the information environment of the firm and with the extent of venture capital influence. Consistent with prior research that finds earnings are of limited usefulness in firm valuation for Internet firms, we find Internet firms place less importance on earnings and greater importance on stock returns in determining compensation grants than do non‐Internet firms. We also find that compensation grants of firms with little or no venture capital influence display significantly stronger association with accounting and stock performance measures than those of firms with more intense monitoring by venture capitalists. This result is consistent with direct monitoring and the use of explicit performance measures acting as substitute governance mechanisms.

Coworker Complementarity and the Stability of Top-Management Teams

We analyze changes in the composition of top management teams when a key member of the team (the chief executive officer [CEO]) departs. We find that the probability of non-CEO top manager turnover increases markedly around times of CEO turnover. Further, the magnitude of this increase depends on the relations between the tenure of the manager and tenures of the departing and incoming CEOs. Departure of a long-tenured CEO has a larger effect on turnover probability for a long-tenured non-CEO manager than for a short-tenured manager. Succession of a long-tenured manager as CEO has a larger effect on turnover probability for a short-tenured non-CEO manager than for a long-tenured manager. We argue that these findings are at least partially the result of complementarities across these groups of coworkers that affect the value of employment relationships between senior executives and firms. Copyright 2006, Oxford University Press.

Co-Worker Complementarity and the Stability of Top Management Teams

We analyze changes in the composition of top management teams when a key member of the team (the chief executive officer [CEO]) departs. We find that the probability of non-CEO top manager turnover increases markedly around times of CEO turnover. Further, the magnitude of this increase depends on the relations between the tenure of the manager and tenures of the departing and incoming CEOs. Departure of a long-tenured CEO has a larger effect on turnover probability for a long-tenured non-CEO manager than for a short-tenured manager. Succession of a long-tenured manager as CEO has a larger effect on turnover probability for a short-tenured non-CEO manager than for a long-tenured manager. We argue that these findings are at least partially the result of complementarities across these groups of coworkers that affect the value of employment relationships between senior executives and firms. Copyright 2006, Oxford University Press.

Financial Distress Risk and New CEO Compensation

We examine how ex ante financial distress risk affects CEO compensation. To disentangle the joint effects of performance on compensation and distress risk, we focus our analyses on new CEOs. Our results indicate that financial distress risk affects compensation through two channels. First, new CEOs receive significantly more compensation when financial distress risk is higher. This finding is consistent with CEOs receiving a compensation premium for bearing this risk since CEOs experience large personal costs if their firms later become financially distressed. Second, financial distress risk is associated with the incentives provided to new CEOs; distress risk is positively associated with pay-performance sensitivity and equity-based compensation and is negatively associated with cash bonuses. Further, financial distress risk is positively associated with pay-risk sensitivity for new CEOs. These findings suggest that financial distress risk alters the nature of the agency relationship in ways that lead fi...

Discussion of 'Unintended Consequences of Granting Small Firms Exemptions from Securities Regulation: Evidence from the Sarbanes-Oxley Act'

(GWZ) examine a potential unintended consequence of the SEC’s use of bright-line thresholds for compliance with reporting regulations. In particular, the authors consider whether the SEC’s postponement of compliance with Section 404 of the Sarbanes-Oxley Act (SOX) for “non-accelerated filers” (firms with a public float of less than

Performance-Contingent Executive Compensation and Managerial Behavior

75 million) provided firms with an incentive to stay small. The authors find that non-accelerated filers are more likely to remain below the

Growth Matters: Disclosure and Risk Premium

75 million threshold than are accelerated filers. They also investigate a variety of actions that non-accelerated filers might take in order to keep their public float below

Discussion of “The revolving door and the SEC׳s enforcement outcomes: Initial evidence from civil litigation” by DeHaan, Kedia, Koh, and Rajgopal (2015)

75 million.