Ya-wen Yang

Corporate Lobbying and Firm Performance: CORPORATE LOBBYING AND FIRM PERFORMANCE

Corporate lobbying activities are designed to influence legislators, regulators and courts, presumably to encourage favorable policies and/or outcomes. In dollar terms, corporate lobbying expenditures are typically one or even two orders of magnitude larger than spending by Political Action Committees (PAC), and, unlike PAC donations, lobbying amounts are direct corporate expenditures. We use data made available by the Lobbying Disclosure Act of 1995 to examine this more pervasive form of corporate political activity. We find that, on average, lobbying is positively related to accounting and market measures of financial performance. These results are robust across a number of empirical specifications. We also report market performance evidence using a portfolio approach. We find that portfolios of firms with the highest lobbying intensities significantly outperform their benchmarks in the three years following portfolio formation.

Product market competition and corporate investment decisions

Purpose - – The study aims to examine the association between product market competition and corporate investment decisions on, particularly, risk-taking and investment efficiency. Existing theoretical studies on whether product market competition mitigates or exacerbates agency problems are inconclusive. Prior research generally finds that competition constrains management opportunism in reporting operating performance. However, the association between product market competition and managerial investment decisions has largely been unexplored. Design/methodology/approach - – The primary measure of product market competition is the Herfindahl–Hirschman Index. The authors use regression analysis to examine the association between corporate risk-taking and over-investment of free cash flow (FCF) (as dependent variables) and product market competition (as an independent variable). Findings - – Using firm-year observations from 1990 to 2010, the authors find that competition encourages managers to invest in risky investment. They also find that competition disciplines management on its use of FCFs. Overall, their results provide support for the disciplining role of product market competition in management investment decisions. The results are robust after they control for shareholder activism and executive compensations. Originality/value - – The paper contributes to the literature by providing evidence of the disciplining role of product market competition in management investment decisions. First, the results suggest that competition encourages managers to invest in risky investment. One potential explanation for the results is that competition reduces opportunities for resource diversion for management personal benefits and, in turn, decreases management risk aversion. Another explanation is that competition forces management to take more risks for the long-term survival of the company. Second, the results indicate that competition disciplines management on its use of FCFs. Although firms in highly competitive industries make investment decisions that are less conservative, they tend to avoid suboptimal investment decisions, such as over-investment of FCF, compared to their counterparts.

Board Diversity and Corporate Risk Taking

This study examines the association between board diversity and corporate risk taking. Research on board diversity has focused on gender diversity, leaving board diversity beyond gender diversity largely unexplored. We construct diversity indexes to measure board diversity in multiple dimensions, including gender, race, age, experience, tenure, and expertise. We use five variables to proxy for corporate risk taking: capital expenditures, R&D expenses, acquisition spending, the volatility of stock returns, and the volatility of accounting returns. We find that firms with more diverse boards are more risk averse, spending less on capital expenditure, R&D, and acquisitions, and exhibiting lower volatilities of stock returns and accounting returns than those with less diverse boards. Our additional analysis shows that firms with more diverse boards are more likely to pay dividends, as well as pay greater amount of dividend per share than their counterparts, confirming that board diversity is negatively associated with risk taking. We also find strong evidence that board diversity significantly curbs excessive risk taking for firms with above industry median risk taking activities. Our results shed light on the desirability of recent legal and disclosure requirements to enhance board diversity and provide implications that nominating and governance committees should consider in forming the best practices for board composition.