Forthcoming Articles

Less Popular But More Effective Toeholds in Corporate Takeovers

Yun Dai, Sebastian Gryglewicz, and Han T.J. Smit

Despite their claimed advantages, toehold strategies have rarely been adopted in recent corporate takeovers and do not seem to increase acquirer returns. Are toeholds ineffective and becoming obsolete? We show that this is not the case. We find that toeholds are preferred for executing difficult takeovers. After controlling for such endogeneity in toehold-based acquisitions, toeholds do increase returns to acquirers. Moreover, the performance of toehold strategies improves over time due to more selective and more effective acquisition of toeholds. We find that this time trend is in part explained by learning-by-doing from past toehold acquisitions.

Board Gender Diversity and Corporate Innovation: International Evidence

Dale Griffin, Kai Li, and Ting Xu

Using a novel database of firm patents and board characteristics across 45 countries, we examine both within- and cross-country determinants of board gender diversity and its relation to corporate innovation. Boards are more likely to include women in countries with narrower gender gaps, higher female labor market participation, and less masculine cultures. Firms with gender diverse boards have more patents, more novel patents, and higher innovative efficiency. Further analyses suggest that gender diverse boards are associated with more failure-tolerant and long-term CEO incentives, more innovative corporate cultures, and more diverse inventors, characteristics that are conducive to better innovative performance.

Positive Externality of the American Jobs Creation Act of 2004

Xiaoli Hu, Zhen Oliver Li, Yuehua Li, and Sha Pei

U.S. multinational enterprises repatriated over $300 billion under the 2004 tax holiday. The repatriated funds can improve debt financing environment of non-repatriating firms, especially those that are financially constrained. We document that such an externality of the tax holiday increases debt financing and consequently investments for financially constrained non-repatriating firms relative to less constrained non-repatriating firms. Using private loan market data, we further confirm a link from repatriated funds to increased debt financing for financially constrained non-repatriating firms. Overall, the 2004 tax holiday appears to have benefited the U.S. economy through its positive externality on the debt market.

Corporate Innovation: Do Diverse Boards Help?

Heng An, Carl R. Chen, Qun Wu, and Ting Zhang

We find corporate innovation is positively related to board diversity as measured by a multidimensional index. The benefit of board diversity is more pronounced for firms with more complex operations, more experienced boards, and stronger external governance, suggesting the superior advising capacity of diverse boards. We find suggestive evidence that firms with diverse boards engage in more exploratory innovations and develop new technology in unfamiliar areas. As a result, they create a larger number of both most-cited and uncited patents. Finally, of the six different aspects of board diversity, professional diversity matters the most for corporate innovation.

Option-Based Estimation of the Price of Co-Skewness and Co-Kurtosis Risk

Peter Christoffersen, Mathieu Fournier, Kris Jacobs, and Mehdi Karoui

We show that the prices of risk for factors that are nonlinear in the market return can be obtained using index option prices. The price of co-skewness risk corresponds to the market variance risk premium, and the price of co-kurtosis risk corresponds to the market skewness risk premium. Option-based estimates of the prices of risk lead to reasonable values of the associated risk premia. An analysis of factor models with co-skewness risk indicates that the new estimates of the price of risk improve the models’ performance compared to regression-based estimates.

Does Board Independence Increase Firm Value? Evidence from Closed-End Funds

Matthew Souther

Previous literature disagrees on the impact of board independence on firm value. The disagreement generally stems from the endogenous nature of board appointments. I add new evidence to this discussion by using a sample of closed-end funds to document the value-enhancing effects of independent boards. Using cross-sectional, difference-in-difference, and instrumental variable techniques, I address these endogeneity concerns and find consistent evidence that board independence is associated with higher firm value.

Does Political Corruption Impede Firm Innovation? Evidence from the United States

Qianqian Huang and Tao Yuan

We examine how local political corruption affects firm innovation in the United States. We find that firms located in highly corrupt areas are less innovative as measured by their patenting activities. The results are robust to the inclusion of a broad set of regional characteristics, instrumental variable analysis, matching analysis, difference-in-differences test, and alternative proxies for local corruption. Further analysis shows that reduced innovation incentives due to high extortion risk and decreased threat of competition could be the possible economic channels through which corruption affects innovation. Overall, our results indicate that local political corruption impedes corporate innovation in the U.S.


More Cash, Less Innovation: The Effect of the American Jobs Creation Act on Patent Value

Heitor Almeida, Po-Hsuan Hsu, Dongmei Li, and Kevin Tseng

Firms can become less innovative following a sudden “inflow” of cash. Specifically, multinational firms that were eligible to repatriate (and indeed repatriated) cash to the U.S. under the American Jobs Creation Act generate less valuable patents than otherwise similar firms. They also conduct more exploratory activities. This effect only exists among firms in less competitive industries, financially unconstrained firms and firms with overconfident CEOs, and is mainly driven by the reduction in the value of U.S.-originated patents. Our evidence suggests that, without appropriate governance, a cash windfall may lead managers to engage in more exploratory innovation that can destroy value.