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Working Papers

The Rock Center for Corporate Governance working paper series provides drafts of authoritative research by Stanford GSB faculty members on corporate governance and leadership topics.

The Arthur and Toni Rembe Rock Center for Corporate Governance is a joint initiative of Stanford Law School and Stanford GSB.

Ed deHaan, Simi Kedia, Kevin Koh, Shivaram Rajgopal
July 20, 2015

We investigate the consequences of the “revolving door” for trial lawyers at the SEC’s enforcement division. If future job opportunities motivate SEC lawyers to develop and/or showcase their enforcement expertise,...

Lisa De Simone, Kenneth J. Klassen, Jeri K. Seidman
May 29, 2015

Income shifting from high-tax to low-tax jurisdictions is considered a primary method of reducing worldwide tax burdens of multinational firms. Extant research generally makes the high-tax and low-tax distinctions...

Robert Daines, Grant Richard McQueen, Robert J. Schonlau
April 13, 2015

In the wake of the backdating scandal, many firms began awarding options at scheduled times each year. Scheduling option grants eliminates backdating, but creates other agency problems. CEOs that know...

M. Daniel Beneish, Charles M. C. Lee, D. Craig Nichols
February 27, 2015

We examine the economic determinants of short-sale supply, and its consequences for future stock returns. Lendable supply increases with expected borrowing costs and decreases with financial statement constructs that indicate...

David F. Larcker, Christopher Armstrong, Jennifer Blouin, Alan D. Jagolinzer
February 25, 2015

We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers...

Yen-Cheng Chang, Harrison G. Hong, Larissa Tiedens, Na Wang, Bin Zhao
January 19, 2015

Diversity of opinions among investors plays a crucial role in models of financial market speculation and bubbles. Yet, little is known about the origins of investor disagreement. Using unique data...

Shai Bernstein, Arthur Korteweg, Kevin Laws
2015

Which start-up characteristics are most important to investors in early-stage firms? This paper uses a randomized field experiment involving 4,500 active, early stage investors. The experiment is implemented by AngelList,...

Zhiyao Chen, Ilya A. Strebulaev, Yuhang Xing, Xiaoyan Zhang
October 29, 2014

We find strong empirical support for the risk-shifting mechanism to account for the puzzling negative relation between idiosyncratic volatility and future stock returns documented by Ang, Hodrick, Xing, and Zhang...

Lisa De Simone, Lillian F. Mills, Bridget Stomberg
October 23, 2014

We identify a subset of income mobile firms asserted to achieve greater tax savings with lower incremental risk to assess the overall risk-return relation in the context of tax avoidance....

Anat R. Admati
September 30, 2014

Excessive leverage (indebtedness) in banking endangers the public and distorts the economy. Yet current and proposed regulations only tweak previous regulations that failed to provide financial stability. This paper discusses...

Iván Marinovic
September 17, 2014

This paper studies the effect of performance feedback on tournament outcomes, when a possibly dishonest principal may manipulate the agents’ expectations to stimulate their effort. Under plausible circumstances, an increase...

Tony Davila, George Foster, NIng Jia
September 11, 2014

The question of whether management control systems (MCS) adopted by start-up companies are valuable is examined. We investigate an international sample of start-ups, including their detailed MCS adoptions and financing...

Iván Marinovic, Felipe Varas
September 5, 2014

This paper studies dynamic disclosure when the firm value evolves stochastically over time. The presence of litigation risk, arising from the failure to disclose unfavorable information, not only prompts bad...

Alan D. Jagolinzer, David F. Larcker, Gaizka Ormazabal, Daniel J. Taylor
August 14, 2014

This paper examines whether insiders at leading financial institutions anticipated the effect of government intervention during the Financial Crisis on their firms’ share prices. While we find no evidence that...

Shai Bernstein
July 3, 2014

This paper investigates the effects of going public on innovation by comparing the innovative activity of firms that went public with firms that withdrew their IPO filing and remained private....

Charles M. C. Lee, Paul Ma, Charles C. Y. Wang
July 2, 2014

Applying a “co-search” algorithm to Internet traffic at the SEC’s EDGAR website, we develop a novel method for identifying economically-related peer firms.  Our results show that firms appearing in chronologically...

Robert Eberhart, Charles E. Eesley, Kathleen M. Eisenhardt
July 1, 2014

This study investigates the affect on new venture performance after a regulatory change that motivated the entry of more elite founders because bankruptcy consequences were moderated. Prior research on policy...

David F. Larcker, Allan McCall, Gaizka Ormazabal
June 19, 2014

Forthcoming in the Journal of Law and Economics.

This paper examines changes in executive compensation programs made by firms in response to proxy advisory firm say-on-pay voting policies. Using proprietary...

Salman Arif, Azi Ben-Rephael, Charles M. C. Lee
May 25, 2014

Daily mutual fund (MF) flows are highly persistent and price-destabilizing, and short-sellers (SSs) trade strongly in the opposite direction to these flows. This negative relation is associated with the expected...

Charles M. C. Lee, Salman Arif
May 6, 2014

Using bottom-up information gleaned from corporate financial statements, we examine the relation between aggregate investment, future equity returns, and investor sentiment. Consistent with the business cycle literature, corporate investments peak...

Shai Bernstein, Albert Sheen
April 28, 2014

How do private equity firms affect their portfolio companies? We document operational changes in restaurant chain buyouts between 2002 and 2012 using comprehensive health inspection records in Florida. Store-level operational...

Christopher S. Armstrong, Christopher D. Ittner, David F. Larcker
April 17, 2014

Performance appraisal is one of the cornerstones of management control systems. Although this topic has been the subject of considerable prior research, most of this work is based on a...

Michael Schwert, Ilya A. Strebulaev
April 6, 2014

Systematic risk is an important determinant of corporate capital structure. A one standard deviation increase in asset beta corresponds to a decrease in leverage of 13%, controlling for total asset...

Will Gornall, Ilya A. Strebulaev
April 2014

We develop a model of the joint capital structure decisions of banks and their borrowers. Strikingly high bank leverage emerges naturally from the interplay between two sets of forces. First,...

Arthur G. Korteweg, Morten Sorensen
April 2014
We evaluate the performance of private equity (“PE”) funds, using a variance decomposition model to separate skill from luck. We find a large amount of long-term persistence, and skilled...
Charles M. C. Lee, Kevin K. Li, Ran Zhang
March 25, 2014

We examine the financial health and performance of reverse mergers (RMs) that became active on U.S. stock markets between 2001 and 2010, particularly those from China (around 85% of all...

Amir Amel-Zadeh, Mary E. Barth, Wayne R. Landsman
March 4, 2014

We describe analytically commercial bank behavior focusing on actions banks take in response to economic gains and losses on their assets to meet regulatory leverage requirements. Our analysis shows that...

Shai Bernstein, Xavier Giroud, Richard Townsend
February 23, 2014

We examine whether venture capitalists contribute to the innovation and success of their portfolio companies, or merely select companies that are already poised to innovate and succeed. To do so,...

Darrell Duffie, Martin Scheicher, Guillaume Vuillemey
January 31, 2014

We use an extensive data set of bilateral exposures on credit default swap (CDS) to estimate the impact on collateral demand of new margin and clearing practices and regulations. We...

Ilya A. Strebulaev, Haoxiang Zhu, Pavel Zryumov
January 26, 2014

We reexamine the classic yet static information asymmetry model of Myers and Majluf (1984) in a fully dynamic market. A firm has access to an investment project and can finance...

Iván Marinovic, Felipe Varaa
January 24, 2014

This paper studies a dynamic communication game in which the seller of an asset, whose credibility is unknown to the market, reports changes in the asset value during multiple periods...

Iván Marinovic, Paul Povel
January 2014

We study how competition for talent affects CEO compensation, taking into consideration that CEO decisions and CEO skills or talent are not observable, and CEOs can manipulate performance as measured...

Anat R. Admati, Peter M. DeMarzo, Martin F. Hellwig, Paul Pfleiderer
December 2, 2013

Shareholder-creditor conflicts can create leverage ratchet effects, resulting in inefficient capital structures. Once debt is in place, shareholders may inefficiently increase leverage but avoid reducing it no matter how beneficial...

Anat R. Admati, Peter M. DeMarzo, Martin Hellwig, Paul Pfleiderer
October 22, 2013

We examine the pervasive view that “equity is expensive,” which leads to claims that high capital requirements are costly for society and would affect credit mark ets adversely. We find...

Jeremy I. Bulow, Paul Klemperer
September 2013

Today’s regulatory rules, especially the easily-manipulated measures of regulatory capital, have led to costly bank failures. We design a robust regulatory system such that (i) bank losses are credibly borne...

Mary E. Barth, Wayne R. Landsman, Mark H. Lang, Christopher D. Williams
March 13, 2013

This study determines whether voluntary adoption of IFRS is associated with increased comparability of accounting amounts and attendant capital market benefits. After “adopting” firms voluntarily adopt IFRS, their accounting amounts...

Nicholas A. Bloom, James Liang, John Roberts, Zhichun Jenny Ying
March 2013

About 10% of US employees now regularly work from home (WFH), but there are concerns this can lead to “shirking from home.” We report the results of a WFH experiment...

Anat R. Admati, Martin F. Hellwig
February 18, 2013

Supplementing the discussion in our book The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, this paper examines the plausibility and relevance of claims in...

Anne Beyer
March 12, 2012

This paper studies the joint effect of conservatism and aggregation on the cost of equity capital and the efficiency of debt contracts. In the model, a firm’s two assets are...

Anat R. Admati, Peter M. DeMarzo, Martin F. Hellwig, Paul Pfleiderer
March 2012

We analyze shareholders’ incentives to change the leverage of a firm that has already borrowed substantially. As a result of debt overhang, shareholders have incentives to resist reductions in leverage...

Darrell Duffie
January 16, 2012

This submission discusses implications for the quality and safety of financial markets of proposed rules implementing the market-making provisions of section 13 of the Bank Holding Company Act, commonly known...

Charles A. O’Reilly, Brian G.M. Main
2012

The central argument for increasing the number of women on corporate boards of directors has been the so-called business case for diversity which proposes that women and minorities add valuable...

Darrell Duffie
August 2011

I am grateful for comments from Viral Acharya, Lewis Alexander, Niki Anderson, Peter Axilrod, Dick Berner, Markus Brunnermeier, Stacey Coleman, Rob Engle, Mike Fishman, Mark Flood, John Gidman, Tobi Guldimann,...

Darrell Duffie, Adam Copeland, Antoine Martin, Susan McLaughlin
July 2011

The U.S. tri-party repo market is used by major broker-dealers to finance their securities inventories. During the financial crisis of 2007-2009, particularly around the failures of Bear Stearns and Lehman...

Dirk Jenter, Katarina Lewellen
2011

This paper explores the impact of target CEOs retirement preferences on the incidence, the pricing, and the outcomes of takeover bids. Mergers frequently force target CEOs to retire early, and...

Darrell Duffie, Haoxiang Zhu
March 6, 2010

We show whether central clearing of a particular class of derivatives lowers counterparty risk. For plausible cases, adding a central clearing counterparty (CCP) for a class of derivatives such as credit default...

David F. Larcker, Christopher Armstrong, Alan Jagolinzer
February 15, 2010

This study examines the use of performance-based incentives for internal monitors (general counsel and chief internal auditor) and whether these incentives impair monitors independence by aligning their interests with the...

Philip Leslie, Paul Oyer
September 2008

We analyze the differences between companies owned by private equity (PE) investors and similar public companies. We document that PE-owned companies use much stronger incentives for their top executives and...

Dirk Jenter, Fadi Kanaan
2008

This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market...