-- Forthcoming, Management Science
-- Washington University 11th Annual Corporate Finance PhD Poster Session Finalist for Best Paper Award in Honor of Professor Stuart I. Greenbaum
-- Western Finance Association Cubist Systematic Strategies Ph.D. Candidate Award for Oustanding Research
Using the healthcare industry as a novel laboratory, I study whether a firm's use of debt enhances its bargaining power during negotiations with non-financial stakeholders. I find that reimbursement rates negotiated between a hospital and insurers for two homogeneous procedures are higher when the hospital has more debt. This relation is stronger among hospitals with less bargaining power relative to insurers ex ante. I provide direct evidence that debt improves a firm's bargaining outcomes.
- Quasi-Insider Shareholder Activism: Corporate Governance at the Periphery of Control with Jonathan Cohn and Aazam Virani.
- Internet Appendix
We document the role of investors at the periphery of control - "quasi-insiders" - in corporate governance. These agents, who include founders, former CEOs, and other former officers, launch activist campaigns in smaller and worse-performing firms than traditional activists, and use aggressive tactics to seek greater control. Their campaigns are associated with positive abnormal returns comparable to those in other activist campaigns and subsequent improvements in operating performance. The presence of a quasi-insider as a blockholder is associated with a significant increase in CEO turnover-performance sensitivity. Overall, our results suggest that quasi-insiders play a meaningful role in governance.
- Control Rights and Corporate Sustainability Around the World with Alexander Dyck, Karl Lins, Lukas Roth, and Hannes Wagner.
Does insider entrenchment stand in the way of firms making investments to improve corporate sustainability? Using a global sample, we find that it does. In family-controlled firms, where outsiders have limited influence due to clear-cut insider entrenchment, environmental performance is significantly lower. When insiders’ power is reduced through specific actionable governance changes, firms subsequently exhibit better environmental performance. In both widely-held and family-controlled firms, the two governance changes that produce the greatest sustainability improvements are the introduction of majority voting requirements for the board and female board representation. In widely-held firms, strengthening board independence and reducing the age and staleness of the board further increase environmental performance.
- ETFs: The Good, the Bad, and the Ugly with David Brown and Stu Scott Cederburg.
We document that the massive growth in ETF assets is driven by both retail and institutional investors. Equity, debt, and especially Smart Beta ETFs have experienced the largest growth in recent years. Investors prefer ETFs that are older, have more liquidity, and have lower fees. We develop four measures of Smart Beta quality and find that investors correctly invest more in good and less in bad Smart Beta ETFs. Investors also prefer ETFs that focus on one factor as opposed to many factors. We find clientele effects with institutional investors being more sensitive to ETF liquidity and quality than retail investors.
- The Role of Proxy Advisors and Large Passive Funds in Shareholder Voting: Lions or Lambs? with Audra Boone and Stu Gillan.
Large passive mutual funds and proxy advisory firms have faced criticism both for being too powerful and not exercising diligence in proxy voting. We document that the "Big 3" passive fund families, Blackrock, State Street, and Vanguard, are increasingly likely to vote with management, and their support is paramount in approving controversial proposals. Meanwhile, mutual funds overall are less likely to vote according to ISS recommendations, and ISS recommendations are not predictive of controversial votes passing, especially post-financial-crisis. Our findings suggest that the Big 3 actively vote their proxies, and that ISS appears less influential over time.
I give a brief summary of the institutional details of the U.S. healthcare sector with a special emphasis on healthcare finance. In addition to its large size, U.S. healthcare has four unique features that can be used to help answer corporate finance questions: segmented markets, variation in corporate type, extensive data requirements and recent consolidation. I explain how changes over the last 100 years have led to each of these features. Next, I delve deeper into bargaining between insurance companies and hospitals, Medicare pricing, and hospital capital structure decisions during 2008-2012. Finally, I conclude with a brief discussion on how the Affordable Care Act has contributed to these factors.