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We examine the extent to which deferred vesting of stock and option grants (deferred pay) helps firms retain executives. To the extent an executive forfeits all deferred pay if they leave the firm, deferred vesting will increase the cost (to the executive) of an early exit. The impact of deferred pay on executive retention, a key ingredient for firms to create shareholder value is hence an important empirical issue. Using pay duration proposed in Gopalan et al. (2014) as a measure of the extent of deferred equity, we find that CEOs and non-CEO executives with longer pay duration are less likely to leave the firm voluntarily. The talent retention role of deferred pay is mitigated by performance-vesting provisions and signing bonuses offered by industry peers. Moreover, we also find that voluntary turnover is less sensitive to pay duration for executives who are perceived to be more talented and have more firm-specific skills. Overall, our study highlights a strong link between compensation design and turnover of top executives. It suggests that firms take into account the need for retaining managerial talent in designing executive compensation.

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executive compensation ;  management turnover ;  pay duration ;  talent retention ;  turnover-performance sensitivity

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作者系中欧国际工商学院金融学副教授，中欧国际工商学院边晓璇对此文也有贡献

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Asset prices remain depressed for years following mutual fund fire sales. We show that price pressure from fire sales is partly due to asymmetric information. We separate trades into expected trades, which assume fund managers scale down their portfolio, and discretionary trades. We find that discretionary trades contain information about future returns, while expected trades do not. Moreover, other traders cannot distinguish between discretionary and expected trades. Our findings help explain the magnitude and persistence of fire sale discounts: fund managers choose which assets to sell and information asymmetries make it difficult for arbitrageurs to disentangle price pressure from negative fundamentals.

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adverse selection ;  asymmetric information ;  fire sales ;  slow moving capital

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Due to its value to private firms, a firm’s political connection (PC) enhances the alignment of external investors with insiders, thereby mitigating the adverse impact of market frictions on corporate financing and investment. This has important implications on corporate policies and governance. Using various identification strategies, we show that PC firms are more likely to issue equity and invest more, while paying out less in dividends. The market responds more positively to news of equity issuance and investment, but less so to news of dividend payouts by PC firms. Moreover, external investors vote more favorably on managerial proposals in PC firms’ annual meetings. And analysts are more optimistic in their forecasts of earnings by PC firms. The evidence is consistent with PC as an investor endorsement device, which in turn incentivizes unconnected firms to proactively seek PC.

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corporate policy ;  dividend ;  external financing ;  investor endorsement ;  market frictions ;  Political connection

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We examine the valuation impact of bank-financed M&As and the loan contracts used to finance M&A transactions, focusing on the difference between bank-dependent acquirers and other acquirers. We find that bank-financed deals have higher acquirer’s CARs relative to other cash M&A deals, but this certification effect exists only for bank-dependent acquirers. Despite bank-dependent acquirers being more susceptible to hold-up, banks do not impose higher loan pricing or more stringent non-price terms on them. After completion of the acquisition, bank-dependent acquirers retain the M&A financing banks for a much larger share of their borrowing needs, suggesting the importance of repeat business for lack of hold-up. Our findings highlight the positive aspects of bank dependence and the importance of implicit contracting for the lack of hold-up in lending markets.

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Bank Dependence ;  Bank Financing ;  Creditor Monitoring ;  M&A

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We examine how stock liquidity affects acquisitions. We hypothesize that liquidity enhances acquirer stock as an acquisition currency, especially when the target is relatively less liquid. As hypothesized, more liquid firms are more likely to make acquisitions and the difference in stock liquidity between acquirer and target firms increases payment with stock, reduces acquisition premiums, and improves acquirer announcement returns in equity deals. To exploit benefits of liquidity, firms take steps to improve stock liquidity prior to stock acquisitions. Our empirical identification relies on policy initiatives that exogenously increase stock liquidity.

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Decimalization ;  Mergers and Acquisitions ;  Stock Liquidity