Sabatino Silveri

Executive Overconfidence and Compensation Structure

We examine the impact of overconfidence on compensation structure. Our findings support the exploitation hypothesis: firms offer incentive-heavy compensation contracts to overconfident Chief Executive Officers (CEOs) to exploit their positively biased views of firm prospects. Overconfident CEOs receive more option-intensive compensation and this relation increases with CEO bargaining power. Exogenous shocks (Sarbanes-Oxley Act of 2002 (SOX) and Financial Accounting Standard (FAS) 123R) provide additional support for the findings. Overconfident non-CEO executives also receive more incentive-based pay, independent of CEO overconfidence, buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence.

Do Institutions Prefer High Value Acquirers? An Analysis of Trading in Stock-Financed Acquisitions

If owners of target shares in a stock-for-stock merger perceive the acquirer as overvalued, they should sell their holdings more aggressively to profit before such overvaluation dissipates. We study institutional owners of targets and find that slightly more than half liquidate their shares in stock mergers, consistent with high institutional-share turnover rates found in the prior literature. However, share retention is higher when valuation measures suggest greater acquirer overvaluation, regardless of whether institutional owners generally prefer growth or value stock. Institutions that prefer large-cap, growth stock are most enthusiastic about bids from large, high-valuation acquirers, and substantially increase their stakes in such deals. JEL Classification: G34

Do Women CEOs Face Greater Threat of Shareholder Activism Compared to Male CEOs? A Role Congruity Perspective

We examine the glass cliff proposition that female CEOs receive more scrutiny than male CEOs, by investigating whether CEO gender is related to threats from activist investors in public firms. Activist investors are extraorganizational stakeholders who, when dissatisfied with some aspect of the way the firm is being managed, seek to change the strategy or operations of the firm. Although some have argued that women will be viewed more favorably than men in top leadership positions (so-called “female leadership” advantage logic), we build on role congruity theory to hypothesize that female CEOs are significantly more likely than male CEOs to come under threat from activist investors. Results support our predictions, suggesting that female CEOs may face additional challenges not faced by male CEOs. Practical implications and directions for future research are discussed.

CEO Power and Decision-Making Under Pressure

Are powerful CEOs more expeditious in responding to pressure from the economic environment? Concentrating decision-making power may facilitate rapid decision-making. However, the quality of decision-making may be compromised, with severe consequences for the firm if a powerful CEO is less likely to receive independent advice or to have his decisions scrutinized. We empirically investigate the relation between CEO power and decision-making under pressure by examining firm performance when industry conditions deteriorate. We focus on industry downturns since these represent an exogenous ‘shock’ to a firm’s environment. The decision making context is important and we focus on three settings where the net effect of CEO power is likely more consequential: when the firm is innovative and decision making is likely more complex, when the industry is competitive and poor decisions can be more serious in terms of firm value and when the industry is characterized by high managerial discretion. In these settings powerful CEOs are found to perform significantly worse than other CEOs during industry downturns -- suggesting contexts in which centralized decision-making is potentially of greater concern.

When Crisis Knocks, Call a Powerful CEO (or Not): Investigating the Contingent Link Between CEO Power and Firm Performance During Industry Turmoil

CEO power seems to be a double-edged sword: Agency-theoretic research views CEO power as ultimately detrimental to the firm, whereas the strategic leadership literature highlights the instrumental role of CEO power in getting things done. These competing perspectives motivate a lively debate in the organizational literature on the performance consequences of CEO power. To extend this line of inquiry, we examine the CEO power–firm performance relation during industry turmoil and delve into the role of three critical situational exigencies—managerial discretion, market competitiveness, and technological innovativeness. Predictions are tested on publicly traded Standard & Poor’s (S&P) 1500 firms in the United States using archival data over 20 years. Implications for further research and practice are discussed.

Ex-Dividend Day Stock Price Behavior - The NASDAQ Evidence

We use dividend-paying Nasdaq-listed firms as a setting to test various explanations of the ex-day price anomaly. Similar to NYSE-listed firms, on average the prices of Nasdaq-listed firms drop by less than the dividend amount on the ex-day. However, the average price-drop is half that observed for NYSE-listed firms and translates to an imputed dividend tax rate that is double the average maximum tax rate over the sample period. In addition, we find the ex-day price-drop increases in dividend yield, opposite the prediction from a tax clientele explanation. Moreover, for non-taxable distributions we find prices behave in a similar manner to taxable distributions on the ex-day, again suggesting taxes are not the primary reason for the price behavior. In sum, we find little support for tax-based explanations. We also find little support for short-term trading and market microstructure explanations. Importantly, our results are robust to transaction costs as proxied by stock price, liquidity, volatility, firm size and bid-ask spread. We supplement our analysis by investigating a subset of firms that voluntarily switch from the Nasdaq exchange to the NYSE. The average price-drop for the switching firms is similar to the Nasdaq average prior to the switch and resembles the NYSE average immediately after the switch. This change in price behavior potentially reflects a changing investor base and suggests the marginal investor of Nasdaq dividend-paying firms places relatively less importance on dividends. Overall, our results call into question the various explanations of the ex-day anomaly. Any potential explanation also needs to account for the Nasdaq evidence.