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Corporate Finance: CEOs

Paper Session

Sunday, Jan. 7, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Grand Ballroom Salon C
Hosted By: American Finance Association
  • Chair: Katharina Lewellen, Dartmouth College

CEO Relative Age and Corporate Risk-Taking

Junru Guo
,
Nankai University
Jia He
,
Nankai University
Sibo Liu
,
Hong Kong Baptist University
Yonglin Wang
,
Lingnan University

Abstract

We investigate the effect of CEO relative age, an early-life measure defined as age relative to others in the same school cohort determined by the cutoff date policy at primary school entry, on corporate risk-taking. We base our analysis on the arguable randomness of managers’ birth months and a novel data set containing the birth month information of 2,595 CEOs from 1,011 Chinese listed firms. We find that firms with “relatively older” CEOs, i.e., those who were older than their classmates at school entry, compared with firms with “relatively younger” CEOs, have greater volatility in their profitability and stock returns, use debt financing more aggressively, engage in more diversifying and value-destroying acquisitions, and experience deteriorating performance and higher crash risks. The results are robust to a battery of alternative specifications. Our additional tests suggest that the overconfidence of relatively older CEOs explains our findings.

Do CEOs Benefit from Employee Pay Raises? Evidence from a Federal Minimum Wage Law

Ekaterina Potemkina
,
Indiana University

Abstract

Using an about 40% U.S. federal minimum wage hike as a natural experiment, I establish an about 2.6% spillover effect of worker wages on CEO pay in smaller and medium U.S. public firms by employment size. I exploit a triple-differences methodology based on the distribution of workers across states. After the hike, a 10% increase in employment share in states bound by federal minimum wage leads to an about 7.7% increase in CEO total pay for firms in minimum-wage-sensitive industries relative to other industries. The results are consistent with CEOs demanding a compensation raise following an exogenous employee pay increase due to fairness concerns and inconsistent with the efficiency wages mechanism or CEOs extracting rents due to strong bargaining power. The results are robust to controlling for firm profitability, observable firm characteristics (matched sample), and local economic conditions (sample of firms headquartered in counties along contiguous state borders).

Is ESG a Managerial Style?

Tianyu Cai
,
Shanghai International Studies University
Leo Liu
,
University of Technology Sydney
Jason Zein
,
University of New South Wales
Hao Zhang
,
University of New South Wales

Abstract

This paper provides evidence that top managers significantly impact firms’ ESG outcomes. Utilizing the fixed-effects approach from Bertrand and Schoar (2003), we find that innate managerial characteristics can explain a substantial portion of variations in corporate ESG policies and outcomes, such as CSR ratings, employee satisfaction, the development of green innovation, and toxic chemical emissions. Additionally, we find that CEOs’ work experience in non-profit organizations (NFPs) has a strong correlation with these fixed effects. Corporate boards appear to be increasingly selecting CEOs with such a background. We show that CEOs equipped with such experience exhibit superior ESG outcomes. Our evidence indicates that these effects can, to a certain degree, be attributed to the CEO’s causal style. Overall, our results suggest that career experience serving the interests of a broader group of stakeholders in the not-for-profit setting, better equips CEOs to achieve corporate ESG objectives.

Discussant(s)
Marius Guenzel
,
University of Pennsylvania
Ilona Babenko
,
Arizona State University
Michelle Lowry
,
Drexel University
JEL Classifications
  • G3 - Corporate Finance and Governance