Essays on Executive Turnover

Chapter 1 deviates from the conventional practice by highlighting an alternative to forced CEO turnover. An interesting puzzle in corporate finance is the week sensitivity of disciplinary action against CEO to poor firm performance. I show that this weak relation is in part driven by an overlooked alternative to firing, which in practice takes the form of splitting the CEO-Chairman role or demoting the incumbent CEO to the executive Chairman position. I first document that such demotions are a frequently used alternative disciplinary mechanism, accounting for nearly 40% of all involuntary CEO transitions. I further show that the use of this mechanism is concentrated among firms in which the CEO is most entrenched or the cost of firing its CEO is high, i.e. CEOs with firm or industry-specific managerial skills and those with strong long-term performance and weak governance. Market reactions to CEO demotions are positive, on average. Finally, I show that classifying CEO demotions as an alternative form of involuntary turnover magnifies the sensitivity of involuntary turnover to firm performance and eliminates the relation between performance and voluntary turnover. In chapter 2, we examine the role of deferred vesting of stock and option grants in reducing executive turnover. To the extent an executive forfeits all unvested stock and option grants if she leaves the firm, deferred vesting will increase the cost (to the executive) of early exit. Using pay Duration proposed in Gopalan, et al., (forthcoming) as a measure of the length of managerial pay, we find that CEOs and non-CEO executives with longer pay Duration are less likely to leave the firm voluntarily. Employing the vesting of a large prior-year stock/option grant as an instrument for Duration, we find the effect to be causal. CEOs with longer pay Duration are also less likely to experience a forced turnover and the sensitivity of forced CEO turnover to firm performance is significantly lower in firms that offer longer duration pay. Overall, our study highlights a strong link between compensation design and turnover for top executives. Finally, in chapter 3, we develop and test a new explanation for forced CEO turnover. Investors may disagree with management on the optimal course of corporate actions due to heterogeneous prior beliefs. Such disagreement may be persistent and costly to firms, and thus create incentives for firms to replace CEOs who investors tend to disagree with. We use this logic to develop and provide evidence for three hypotheses. First, firms with higher investor-management disagreement are more likely to fire their CEOs, and this effect is more pronounced in more-financially-constrained firms as well as those with less-entrenched CEOs and stronger shareholder governance. Second, firms are more likely to hire an external CEO as a successor if investor-management disagreement with the departing CEO is higher. Third, investor-management disagreement declines following forced CEO turnover. Thus, the evidence sheds new light on how disagreement between management and investors shapes one important aspect of corporate governance--the replacement of CEOs

Evaluation of hardening models to simulate joints in timber shear walls

The properties of sheathing-to-framing joints considerably affect the load carrying capacity of a light-frame timber shear wall. A fastener with isotropic or kinematic hardening properties is modelled for the sheathing-to-framing joints with a zero-length element, with coupled properties in two perpendicular (orthogonal translational)directions to avoid the overestimation achieved with an uncoupled alternative. A single fastener experiment is performedto determine the elastic and plastic properties. For both fastener level and wall level modelling, monotonic as well ascyclic loading scheme is analysed. A concept of modelling the elasto-plastic coupled behaviour with hardening of theconnector model for the fasteners is suggested. A damage response of the fastener is also studied to estimate the failurein load capacity of the connector model and decrease in the wall capacity after the maximum loading

Disagreement-induced CEO turnover

We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover

Liquid Stock as an Acquisition Currency (CEIBS Working Paper, No. 018/2020/FIN, 2020)

We examine how stock liquidity affects acquisitions. We hypothesize that liquidity enhances acquirer stock as an acquisition currency, especially when the target is relatively less liquid. As hypothesized, more liquid firms are more likely to make acquisitions and the difference in stock liquidity between acquirer and target firms increases payment with stock, reduces acquisition premiums, and improves acquirer announcement returns in equity deals. To exploit benefits of liquidity, firms take steps to improve stock liquidity prior to stock acquisitions. Our empirical identification relies on policy initiatives that exogenously increase stock liquidity

A numerical and experimental investigation of non-linear deformation behaviours in light-frame timber walls

In recent decades, there is a trend in Scandinavian countries to build multi-storey residential houses using prefabricated timber modules. It is a highly efficient construction process with less environmental impact and less material waste. A significant building element in the timber modules is the light-frame timber wall, which has to be carefully analysed and optimized in this process. This paper presents a new parametric Finite Element (FE) model that can simulate both in-plane and out-of-plane deformations in the light-frame walls. A new and flexible (Eurocode based) approach to define the properties of the mechanical connections is introduced. A numerical model is presented through simulations of several walls that were verified with full-scale experiments. The results indicate that the numerical model could achieve fairly reasonable accuracy with the new approach. Furthermore, several parametric studies are presented and discussed from global and local points of view, to investigate the effects of certain parameters that are not considered in the design method according to Eurocode 5