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.
The moral hazard incentives of the bank safety net predict that distressed banks take on more risk and higher leverage. Since many factors reduce these incentives, including charter value, regulation, and managerial incentives, the net economic...Read more
During the revelation of the Weinstein scandal and the emergence of the #MeToo movement, firms with a culture of ethical behavior toward women, proxied by having women among their five highest paid executives, earned excess returns of close to 1....Read more
We study the contribution of directors to firm resilience by assessing the relative importance of their advisory and monitoring roles at times of crisis. Based on manually collected US data, we document that four bord-related variables affect...Read more
Adjusting for inflation, the annual amount paid out through dividends and share repurchases by public non-financial firms is three times larger in the 2000s than from 1971 to 1999. We find that an increase in aggregate corporate income explains...Read more