Urban Agglomeration and CEO Compensation
Bill Francis, Iftekhar Hasan, Kose John, Maya Waisman
Journal of Financial and Quantitative Analysis,
Nr. 6,
2016
Abstract
We examine the relation between the agglomeration of firms around big cities and chief executive officer (CEO) compensation. We find a positive relation among the metropolitan size of a firm’s headquarters, the total and equity portion of its CEO’s pay, and the quality of CEO educational attainment. We also find that CEOs gradually increase their human capital in major metropolitan areas and are rewarded for this upon relocation to smaller cities. Taken together, the results suggest that urban agglomeration reflects local network spillovers and faster learning of skilled individuals, for which firms are willing to pay a premium and which are therefore important factors in CEO compensation.
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Relative Peer Quality and Firm Performance
Bill Francis, Iftekhar Hasan, Sureshbabu Mani, Pengfei Ye
Journal of Financial Economics,
Nr. 1,
2016
Abstract
We examine the performance impact of the relative quality of a Chief Executive Officer (CEO)’s compensation peers (peers to determine a CEO's overall compensation) and bonus peers (peers to determine a CEO's relative-performance-based bonus). We use the fraction of peers with greater managerial ability scores (Demerjian, Lev, and McVay, 2012) than the reporting firm to measure this CEO's relative peer quality (RPQ). We find that firms with higher RPQ earn higher stock returns and experience higher profitability growth than firms with lower RPQ. Learning among peers and the increased incentive to work harder induced by the peer-based tournament contribute to RPQ's performance effect.
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CEO Political Preference and Corporate Tax Sheltering
Bill Francis, Iftekhar Hasan, Xian Sun, Qiang Wu
Journal of Corporate Finance,
2016
Abstract
We show that firms led by politically partisan CEOs are associated with a higher level of corporate tax sheltering than firms led by nonpartisan CEOs. Specifically, Republican CEOs are associated with more corporate tax sheltering even when their wealth is not tied with that of shareholders and when corporate governance is weak, suggesting that their tax sheltering decisions could be driven by idiosyncratic factors such as their political ideology. We also show that Democratic CEOs are associated with more corporate tax sheltering only when their stock-based incentives are high, suggesting that their tax sheltering decisions are more likely to be driven by economic incentives. In sum, our results support the political connection hypothesis in general but highlight that the specific factors driving partisan CEOs' tax sheltering behaviors differ. Our results imply that it may cost firms more to motivate Democratic CEOs to engage in more tax sheltering activities because such decisions go against their political beliefs regarding tax policies.
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Evidence for the Existence of Downward Real-Activity Earnings Management
Bill Francis, Iftekhar Hasan, Lingxiang Li
Journal of Accounting, Auditing and Finance,
Nr. 2,
2016
Abstract
Prior studies of real-activity earnings management (REM) focus on earnings-inflating abnormal activities. We seek to establish the existence of downward REM by investigating several corporate events in which managers have incentives to temporarily deflate market valuations. Specifically, we focus on, and find downward REM before, share repurchases, management buyouts (MBOs), and CEO option awards. Large-sample evidence of downward REM is also found in our general analysis of earnings smoothing. Downward REM becomes much smaller or nonexistent when there is a lack of managerial incentives in those events, such as non-carry-through repurchases, incomplete MBOs, and unexpected option awards. Following the research design of Zang, we find that various REM and accrual-based earnings management (AEM) cost factors consistently influence the magnitude of downward REM and AEM around the three corporate events.
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