“Playing favorites: Conflicts of interest in mutual fund management” (joint work with Diane Del Guercio and Egemen Genc), forthcoming, Journal of Financial Economics Online Appendix
We provide new evidence in the debate on the impact of side-by-side management in the mutual fund industry. Using a new dataset hand collected from SEC regulatory filings, we examine the performance of funds with managers who receive performance-based incentive fees in three different types of accounts: registered investment companies, pooled investment vehicles, and separately managed accounts. We find that funds with managers who receive incentive fees in pooled investment vehicles (e.g. hedge funds) underperform other peer funds by an economically and statistically significant 9.6 bps per month in Carhart alpha, or 115 bps per year. Further tests using a sample of managers who switch from receiving no incentive fees to receiving incentive fees in pooled investment vehicles during the sample period confirm our prior finding of the negative impact on mutual fund performance. Our evidence provides support for the conflicts of interest hypothesis, which suggests that the high-powered incentive fees in pooled investment vehicles lead mutual fund managers to strategically shift returns from mutual funds to these other accounts.
“Institutional investor activism” (with Diane Del Guercio) in Socially Responsible Finance and Investing: Financial Institutions, Corporations, Investors, and Activists, Eds. H. Kent Baker and John Nofsinger: 359-380 (John Wiley & Sons, 2012)
In this invited book chapter, we examine how institutional investors incorporate environmental, social, and governance criteria into their investment and activism programs. We document the frequency and types of shareholder proposals submitted by institutional investors in this area. We highlight the key sponsors, the most common actions requested, and measures of success in achieving activist goals. Lastly, we contrast between institutional sponsors and non-institutional sponsors.
“Individual reputation and settling up in the director labor market” (joint work with Mark Chen, Qinxi Wu, and Evgenia Zhivotova)
We examine the effects of individual reputation on career outcomes in the labor market for corporate directors. Using unique data on prestigious, individual-level awards, we isolate the career effects of reputational shocks by employing a number of identification strategies. We find that an enhanced reputation increases a director’s likelihood of sitting on the board of a firm with larger size, more public prestige, greater social responsibility, and less fraud. A positive shock to reputation allows a director to upgrade his or her portfolio by gaining new, more desirable board seats. Moreover, improved reputation raises the likelihood that a director holds key internal board leadership roles. Overall, our findings suggest the presence of strong reputational rewards and ex post settling-up in the internal and external markets for boardroom talent.
“Concentration of power in boards of directors and impact on firm performance” (joint work with Jason Turkiela)
We study a unique aspect of the board of directors, the concentration of power within the board, and its impact on board decisions. Based on theories of the power structure within a team, we hypothesize that boards with power concentrated in the hands of a few directors are more likely to make extreme decisions than those with power equally distributed between board members. We use committee assignments as a proxy for board power to develop a measure of boards’ power concentration. We find empirical evidence consistent with our hypothesis, demonstrating that firms with higher power concentration have higher variability in monthly stock returns, return on assets, CEO total compensation, and CEO cash compensation.
“Determinants of the authority structure in the board of directors” (joint work with Jason Turkiela)
Using a hand-collected sample of corporate board and committee appointments from 1996 to 2011, we examine the determinants of how authority is distributed among the directors on a firm’s board. Consistent with the theoretical predictions of several models from organizational economics, we find that firms that are larger, more complex, use higher amounts of physical capital, and in more competitive industries tend to favor a more decentralized decision-making structure. In contrast, the boards of firms in highly volatile industries, that have a highly concentrated ownership structure, and long serving CEOs choose more concentrated decision-making structures. We conclude that boards of directors are optimally structured in response to the environments in which the firms operate.