Governance and Finance
In recent decades, corporate governance no longer focuses on maximizing shareholder value but on balancing all stakeholders' interests. Corporate governance is then viewed more broadly as the nexus of rules, practices, and processes that determine the objective of a firm. Absent good governance, shareholders might realise inferior returns, creditors might lose interest payments, business partners might suffer from contract breaches, and employees might lose their future career opportunities (e. g., managers that used to work for Enron). High-quality governance ensures that all stakeholders' capital is effectively managed. Firms benefit from good governance in various ways, such as a higher valuation, a lower cost of capital, better talent attraction, and higher customer loyalty, for example.
The research group “Governance and Finance” studies traditional and modern views of corporate governance in financial markets and contributes to the literature in two ways. First, it contributes to understanding the effectiveness of different governance mechanisms' roles in talent selection, incentive, and retention. Individuals carry out corporate objectives, and good governance must ensure that the most qualified talent is allocated to the optimal position, exerts optimal effort, and stays with the firm. For example, the most important duty of the board of directors is to select, incentive, and retain the most talented/suitable CEO.
Second, this group also investigates how various forces in credit market impact corporate governance. Various stakeholders seek to influence corporate strategy differently with recent advances in the financial market. For example, the rise of common ownership might reduce firms' incentives to compete, the increase of active ownership might suddenly switch firms' investment strategies (i. e., shareholder activism), and the participation of shareholders in the credit market provides opportunities to internalise the shareholder-creditor conflicts. This group's research seeks to advance the knowledge of different stakeholders' methods and their effectiveness in influencing governance objects.
Workpackage 1: Talent Selection, Incentive, and Retention
Workpackage 2: Stakeholders and Governance
Research Cluster
Financial Resilience and RegulationYour contact

- Department Financial Markets
Refereed Publications

Corporate Social Responsibility and Profit Shifting
in: European Accounting Review, forthcoming
Abstract
This paper examines the relation between corporate social responsibility (CSR) performance and tax–motivated income shifting. Using a profit–shifting measure estimated from multinational enterprises (MNEs) data, we find that parent firms with higher CSR scores shift significantly more profits to their low-tax foreign subsidiaries. Overall, our evidence suggests that MNEs engaging in CSR activities acquire legitimacy and moral capital that temper negative responses by stakeholders and thus have greater scope and chance to engage in unethical profit-shifting activities, consistent with the legitimacy theory.

The Corporate Investment Benefits of Mutual Fund Dual Holdings
in: Journal of Financial and Quantitative Analysis, forthcoming
Abstract
Mutual fund families increasingly hold bonds and stocks from the same firm. We present evidence that dual ownership allows firms to increase valuable investments and refinance by issuing bonds with lower yields and fewer restrictive covenants, especially when firms face financial distress. Dual holders also prevent overinvestment by firms with entrenched managers. Overall, our results suggest that mutual fund families internalize the agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.

Creditor-control Rights and the Nonsynchronicity of Global CDS Markets
in: Review of Corporate Finance Studies, No. 1, 2025
Abstract
<p>We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.</p>

The Effects of Antitrust Laws on Horizontal Mergers: International Evidence
in: Journal of Financial and Quantitative Analysis, No. 7, 2024
Abstract
This study examines how antitrust law adoptions affect horizontal merger and acquisition (M&A) outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers’ five-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers' announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement (Baker (2003)). The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare.

Non-Standard Errors
in: Journal of Finance, No. 3, 2024
Abstract
In statistics, samples are drawn from a population in a datagenerating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidencegenerating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.
Working Papers

Corporate Governance Benefits of Mutual Fund Cooperation
in: IWH Discussion Papers, No. 21, 2022
Abstract
Mutual fund families increasingly hold bonds and stocks from the same firm. We study the implications of such dual holdings for corporate governance and firm decision-making. We present evidence that dual ownership allows financially distressed firms to increase investments and to refinance by issuing bonds with lower yields and fewer restrictive covenants. As such, dual ownership reduces shareholder-creditor conflicts, especially when families encourage cooperation among their managers. Overall, our results suggest that mutual fund families internalize the shareholder-creditor agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.

Why Do Workers at Larger Firms Outperform?
in: Working Paper, 2020
Abstract
Workers at larger firms outperform on average. For example, equity analysts working for more reputable brokerage firms produce more accurate earnings forecasts. Analysts employed by the highest ranked brokerages are about 6% more accurate than those employed by the lowest ranked brokerages, which is equivalent to an advantage of 17.5 years of more experience. This outperformance is driven by two significant effects: more reputable firms provide more resources that improve analysts' forecasting ability (influence), while more reputable firms also attract more talented candidates (sorting). We estimate a two-sided matching model to disentangle these two effects. We find that the direct influence effect accounts for 73% of the total impact while the sorting effect accounts for the remaining 27%.

Lame-Duck CEOs
in: SSRN Working Papers, 2018
Abstract
We examine the relationship between protracted CEO successions and stock returns. In protracted successions, an incumbent CEO announces his or her resignation without a known successor, so the incumbent CEO becomes a “lame duck.” We find that 31% of CEO successions from 2005 to 2014 in the S&P 1500 are protracted, during which the incumbent CEO is a lame duck for an average period of about 6 months. During the reign of lame duck CEOs, firms generate an annual four-factor alpha of 11% and exhibit significant positive earnings surprises. Investors’ under-reaction to no news on new CEO information and underestimation of the positive effects of the tournament among the CEO candidates drive our results.

Selection Versus Incentives in Incentive Pay: Evidence from a Matching Model
in: SSRN Working Papers, 2018
Abstract
Higher incentive pay is associated with better firm performance. I introduce a model of CEO-firm matching to disentangle the two confounding effects that drive this result. On one hand, higher incentive pay directly induces more effort; on the other hand, higher incentive pay indirectly attracts more talented CEOs. I find both effects are essential to explain the result, with the selection effect accounting for 12.7% of the total effect. The relative importance of the selection effect is the largest in industries with high talent mobility and in more recent years.

The Liquidity Premium of Safe Assets: The Role of Government Debt Supply
in: IWH Discussion Papers, No. 11, 2017
Abstract
The persistent premium of government debt attributes to two main reasons: absolute nominal safety and liquidity. This paper employs two types of measures of government debt supply to disentangle the safety and liquidity part of the premium. The empirical evidence shows that, after controlling for the opportunity cost of money, the quantitative impact of total government debt-to-GDP ratio is still significant and negative, which is consistent with the theoretical predictions of the CAPM with utility surplus of holding convenience assets. The relative availability measure, the ratio of total government liability to all sector total liability, separates the liquidity premium from the safety premium and has a negative impact too. Both theoretical and empirical results suggest that the substitutability between government debt and private safe assets dictates the quantitative impact of the government debt supply.