In a new paper, we examine how tournament-based incentives affect corporate cash holdings and the value of those holdings for shareholders.
Before a firm selects a new CEO, it may run a tournament within the firm to rank its vice-presidents (VPs) as candidates. Because the actual ability of a VP is unobservable, the VP with the best performance relative to his peers will likely win the tournament. The payoff structure of tournament-based incentives is similar to that of stock options, in which the payoff is an increase in pay, perquisites, and prestige associated with being the CEO. This option-like feature … Read more
Uncertainty about government economic policy reduces corporate investment and increases financing costs, as prior research has shown. In our new paper, we examine the relationship between policy uncertainty and M&A and the implications for shareholder value. We use the BBD policy uncertainty index developed by Baker, Bloom, and Davis (2016) as a proxy to examine how policy-related economic uncertainty affects firm acquisitiveness, the time it takes to complete a deal, the method of payment, and acquirer and target shareholder value. The BBD index is based on the weighted average of three components: the frequency of newspaper articles containing key terms … Read more