My research focuses on corporate governance. I am particularly passionate about research projects with rich institutional details whose results have important implications for practitioners.
Proxy Advisors' Recipe for Compensation Analysis
Job Market Paper
I explore a novel setting in which ISS, the most prominent proxy advisor, has partnership arrangements with compensation consultants ("partner consultants"). I find that firms that engage partner consultants reduce the incidence of ISS negative recommendations for say-on-pay and equity compensation plan proposals by 21% to 30%, compared to the unconditional probability. In addition, these firms provide roughly 7% higher compensation to their CEOs. My results also show that, when voting for say-on-pay proposals, shareholders of firms that engage partner consultants underweight positive recommendations from ISS. Overall, my findings are consistent with firms obtaining incremental information about the compensation model of ISS by engaging partner consultants. Firms exploit this information to reduce the likelihood of an ISS negative recommendation, while increasing executive compensation for what appears to be opportunistic reasons. The findings suggest a conflict of interest in which ISS benefits from partnership arrangements that could ultimately hurt shareholders.
Social Unrest as an Impetus for Racial Diversity: Firm Responses to the Murder of George Floyd
George Floyd’s murder offers a unique setting to examine the valuation effects of racial diversity to shareholders. Using Black participation in boards as an observable proxy for a firm’s diversity issues, we find that firms with no Black directors experienced a share price drop of 1.5% immediately following the murder. We develop a text-based measure of a firm’s exposure to diversity issues from conference call transcripts and find that firms with diversity exposure experience a stock price drop of 0.7% around the date of the conference call. We also find that firms respond to the murder by being much more likely to appoint a Black director. The market response to the appointments of Black directors after the murder is on average positive, but the effect is muted when the additional diversity comes at the cost of increased board size. We find no evidence of a change in the skillset of incoming directors of different ethnic groups following the murder, but we find increased busyness for Black directors.