As firms have more assets in place, more of management?s limited attention is focused on managing assets in place rather than developing new growth options. Consequently, as firms grow older, they have fewer growth options and a lower ability to generate new growth options. This simple theory predicts that Tobin?s q falls with age.
Further, competition in the product market is expected to slow down the decrease in Tobin?s q because it forces firms to look for alternative sources of rents. Similarly, greater competition in the labor market reduces the decrease in Tobin?s q with age because old firms are in a better position to hire employees that can help with innovation. In contrast, competition in the market for corporate control should accelerate the decline because it forces management to focus more on managing assets in place whose performance is more directly observable than on developing growth options where results may not be observable for some time. We find strong support for these predictions in tests using exogenous variation in competition.
This paper studies how managers react to shareholder empowerment vis-à-vis governance provisions. We show that a staggered legislative change that increases noncompliance costs in the implementation of shareholder-initiated majority voting...Read more
Using a novel text-based measure of top management team diversity, covering over 70,000 top executives in over 6,500 U.S. firms from 1999 to 2014, we show that analyst forecasts are systematically more pessimistic for firms with more diverse top...Read more
Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First,...Read more
This study sets out to examine the relative importance of legal versus cultural institutions and personal values for strategy and corporate governance. We present first evidence on the way personal and institutional factors together guide public...Read more