Research

Abstract: Using a comprehensive sample of say-on-pay recommendations from the two largest proxy advisors over the period 2012 – 2019, I document that proxy advisors fail to filter out industry- level returns that are presumably beyond the control of management in evaluating a CEO’s pay package. This finding contradicts the predictions of standard agency theory that CEOs should be evaluated on their relative performance in the presence of common industry shocks. I use proxy advisors’ adjustment for industry performance as the quality measure of their recommendations. I find a decrease in quality (1) when proxy advisors are busy; (2) when proxy statements and pay contracts are complex; and (3) when there are other salient proposals at the same meetings. My analysis suggests that proxy advisors’ capacity constraints are likely explanations for the limited applications of relative performance evaluations in their recommendations. By focusing on agency theory and predictions consistent with shareholder value maximization for a typical firm, my paper provides a new basis for assessing the quality of proxy advice and shows that proxy advisors’ busyness negatively affects the quality of their recommendations.

*Semi-finalist for FMA Best Paper Award

Abstract: We develop a novel measure of disagreement in voice between active and passive mutual funds using their proxy votes that captures shareholder conflicts in public firms. We show that the disagreement in voice between passive and active mutual funds destroys firm value and suggest that the firm value loss is due to conflicting incentives between the two groups of mutual funds. Using Federal Open Market Committee announcements with press conferences as events that create scope for investors to make informed votes and interpret news differently for individual firms, we show that such value-destroying effect of disagreement is likely causal.

*CSEF/UniCredit Foundation Best Paper Award

Abstract: We study the role of national culture in explaining within-firm pay inequality in closely-held firms owned by immigrants using a unique employee-employer matched dataset linked with firm ownership and immigrant records in Canada over the 2001 – 2017 period. We find that culture that immigrant owners carry from their home countries is an economically significant determinant of pay inequality within their firms. We show that Hofstede’s individualism is a key cultural dimension affecting within-firm pay inequality: firms owned by individuals from more individualistic countries have larger pay inequality. We further show that the impact of culture on within-firm pay inequality is causal. In a difference-in-differences setting using firms that undergo ownership changes, we find a significant increase in within-firm pay inequality after the firm was taken over by immigrant owners from a country with higher within-firm pay inequality or from a more individualistic country. Overall, our findings suggest that informal institutions such as national culture are important determinants of income inequality.

Smart Contracts’ Governance: A New Order for Economic Activity? (with Jan Bena)

The Returns to Startup Investment (with Will Gornall and Ting Xu )