1. "Culture and R2" with Cheol S. Eun and Steven Chong Xiao, Journal of Financial Economics, 115 (2015): 283-303. [SSRN Link]

Culture - "Software of the Mind", "it is the collective programming of the mind which distinguishes the members of one group or category of people from another." - Geert Hofstede

We find that stock prices co-move more (less) in culturally tight (loose) and collectivistic (individualistic) countries. Culture influences stock price synchronicity by affecting correlations in investors’ trading activities and a country’s information environment. Trade and financial openness weakens the effect of domestic culture on stock price comovements.

2. "International Sourcing and Capital Structure" with Cheol S. Eun, Review of Finance, 20(2016): 535-574. [SSRN Link]  [Online Supplemental Tables]

The total value of international purchases of goods by U.S. firms increased from 498 billion dollars in 1990 to 2,745 billion dollars in 2012. Over the same period, the number of countries and areas that U.S. firms buy from increased from 76 to 236. - Based on the trade data from the U.S. Census Bureau

We use the IO tables to construct international sourcing level for over 500 disaggregate industries industries from 1993 to 2006 and find that international sourcing has a significant negative influence on financial leverage. The negative influence is stronger in industries that have high R&D intensities and are financially constrained. However, the negative relation is mitigated when suppliers are from countries with strong legal environments and when the supplier markets are more competitive. We rely on supplier countries' WTO accessions and supplier countries' natural trade openness to establish causality.

3. “Executive Compensation Incentives Contingent on Long-term Accounting Performance” with Zhi Li. [SSRN LINK] Forthcoming, Review of Financial Studies

The percentage of S&P 500 firms that adopt multi-year accounting-based performance (MAP) incentives increased from 16.6% in 1996 to 43.3% in 2008. The average annualized target payout from the plans is around $2.2 million, roughly two times a CEO’s base salary and exceeds the payout of a bonus plan. Expected payouts from MAP incentives have now exceeded those of option grants and become the most significant component of CEO compensation for firms that grant MAP incentives.

We analyze both cross-sectional determinants and time-series trend of MAP plan adoption and design. We find that the use and design of MAP incentives depend on the signal quality of stock vs. accounting performance, shareholder horizons, strategic imperatives, and board independence. The recent shift toward MAP incentives are related to several non-mutually exclusive events that are onset at the beginning of 2000s, including the technology bubble, accounting rule changes, and the option backdating scandals. These events increased the perceived costs of option grants and benefits of using MAP incentives. Subsequently, firms started to use stock-based MAP plans to replace option grants, resulting in changes in pay design but not level. While firms respond to the changes in the contracting environment, they rationally consider firm characteristics and do not blindly follow the trend.

4. “Outside Employment Opportunities, Employee Productivity, and Debt Discipline" with Jayant Kale and Chip Ryan. [SSRN LINK] Accepted, Journal of Corporate Finance

To what extent "Joe" puts up with his needy boss depends on whether he can easily find another job. This is pretty much our hypothesis in this paper and we find empirical evidence consistent with it.

Using a sample of over 99,000 firm year observations encompassing more than 13,800 firms from 1978 to 2007, we analyze how changes in labor market conditions influence the disciplining effect of debt on employee productivity. We document that better (worse) outside employment opportunities weaken (strengthen) the disciplinary effect of debt on employee output. The influence of outside employment options on leverage-output relation is robust to various controls for endogeneity, including using instrumental variables, a quasi-natural experiment, both firm and industry-level analysis, alternative model specifications, and controls for employees’ work conditions and changes in work efficiencies. Altogether, our findings highlight the importance of labor market conditions on the efficacy of corporate financial policies and our understanding of how these policies influence economic outcomes.

Working Papers

1. "Compensation Incentives for Nonfamily Executives in Family Firms" with Zhi Li and Chip Ryan. [SSRN Link]

  • Presented at European Finance Association Meetings, Copenhagen, 2012; Summer Research Conference in Finance, Indian School of Business, 2012; Financial Management Association Meetings, Denver, 2011; Midwest Finance Association Meetings New Orleans, 2012; Georgia State University; Tulane University; the University of New Orleans; Helsinki School of Economics
Family firms comprise more than one third of publicly held firms in the United States and around the world. About half of the S&P 1500 family firms are led by nonfamily CEOs and more than 90% of the top executives in these firms are not from the founding family.

Consistent with the unique agency environment in family firms, i.e., mitigated principal-agent conflicts and intensified principal-principal conflicts, we find that nonfamily executives receive weaker pay-for-performance and risk-taking incentives. The influence of family on compensation incentives depends on family ownership and management. Tournament incentives are present and positively related to firm performance only in family firms without family members as potential heirs. Moreover, we find that the effect of family on incentives is significantly stronger than that of nonfamily blockholders, which suggests that family influence goes beyond concentrated ownership.

2. “Leading in Tough Times: The Characteristics of Recession-proof CEOs” with Jiaren Pang and Sheri Tice.
  • Presented at Tulane University, Tsinghua University
"Only when the tide goes out do you discover who's been swimming naked." - Warren Buffet

Using hand-collected data on the detailed backgrounds of CEOs of S&P 1500 firms, we construct a comprehensive list of CEO characteristics (experience and endowments) to examine whether CEOs matter during the subprime mortgage crisis and the ensuing recession from 2007 to 2009. The unexpected timing and severity of the recession and our dataset allow us to overcome several endogeneity issues that limit the inferences of CEO studies. We find that CEOs who experienced more downturns in the current industry perform better, while CEOs with more diversified work experience perform worse than other CEOs in the recession. In contrast, no CEO characteristic is significantly related to firm performance in the pre-recession normal period. Further analysis on firm policies shows that CEOs with more industry downturn experience hold more cash and spend more on R&D and capital expenditure, and this can explain their better recession performance. Meanwhile, CEOs with more diversified work experience pay fewer dividends, but this can only partially explain their underperformance.

3. "CEO Mobility, the CEO-firm Fit, and Firm Outcomes" with Chip Ryan. [SSRN Link for the previous version]
  • A predecessor of this paper was presented at Financial Management Association Meetings, Denver, CO, 2011; Finance Down Under Conference 2012, Melbourne, Australia; Georgia Institute of Technology; Louisiana State University; the University of South Carolina;Clemson University, Tulane University, Texas Christian University, Drexel University, Florida Atlantic University, University of Kansas, Rensselaer Polytechnic Institute
4. “Learning, CEO Power and Board-of-Director Monitoring: Evidence from CEO Tenure" with Chip Ryan and Chip Wiggins. [SSRN Link]
We examine how CEO tenure and board characteristics affect board monitoring, CEO turnover, and firm performance. We find that board meeting frequency declines as CEO tenure increases and the board has a greater proportion of insiders. The intensity of both relations varies by industry. Tenured CEOs are less likely to be fired, but CEO tenure does not influence the sensitivity of forced turnover to firm performance. Increases in the equilibrium level of monitoring do not relate to operating improvements, but tenured CEOs continue to perform well even when subject to less scrutiny. Our results support the premise that the level of board monitoring evolves over time as a constrained equilibrium influenced by bargaining, learning, and the firm's environment.

(For the complete list of my working papers, please see my CV. To get a copy of a working paper that does not have a SSRN link, please email me at: Thank you for your interest!)