Tat-kei Lai

The Market for CEOs: An Empirical Analysis

We investigate empirically a market-based explanation for the rise in recent years in external CEO hiring and compensation. Consistent with the market-based theory, we find that firms in industries relying on general managerial skills are more likely to hire CEOs externally than firms in industries relying less on such skills. We show that firms relying on internal CEOs have on average higher profits than external-CEO firms and that the difference in profits decreases as general skills become more important in the industry. We relate managerial skills to compensation and show that CEO general skills induce better firm performance and higher compensation.

How Do CEOs Create Value for Their Firms

Do CEOs really matter for firm performance? And if they do, how does CEO human capital translate into firm value? We investigate these questions using a sample of firms with CEO turnover. We find that when a CEO with more general managerial human capital is matched with a firm relying more on such skills, the firm reduces leverage and invests less in intangibles, relative to firms relying on CEOs with more firm-specific skills. These changes in firm financing and investment policies lower business risk and reduce the costs associated with financial distress, which, in turn, manifest into higher firm value. Our results suggest that CEOs do matter for firm performance, and illustrate possible channels through which CEO human capital can translate into higher firm value.

Global Effects of U.S. Dividend Income Tax

Do non-U.S. firms respond to the dividend income tax U.S. investors pay to the IRS? The answer depends on the behavior and influence of U.S. investors in the foreign stock markets, and the underlying mechanisms may be different from those for U.S. firms. Using the 2003 dividend tax cut, which only applies to certain non-U.S. firms depending on both tax treaties and corresponding foreign withholding taxes, we find that 1) foreign firms from which U.S. investors enjoy the full tax cut become more likely to initiate or increase their dividends; 2) such changes are stronger across those foreign firms that are bigger, index-included and with higher credit rating; and 3) these firms also respond consistently to the expiry of the tax cut.

The US finance wage premium before and after the financial crisis: a decomposition exercise

Does the recent financial crisis change the wage structures of the US finance and nonfinance sectors? In this article, we study the wage gap between workers in these two sectors between 1990 and 2011. Using data from the Current Population Survey, we find that the finance wage premium increased over time and only dropped modestly during the crisis. Using the Oaxaca–Blinder method to decompose the wage gap into ‘explained’ and ‘unexplained’ parts, we also find that the wage gap was entirely driven by unexplained factors.