Count on Your Subordinates: Young Managers and Innovation Efficiency

We investigate the relationship between executives’ horizons and firms’ innovation efficiency. Motivated by Acharya, Myers, and Rajan’s (2011, JF) theory, we devise a measure of internal governance based on the difference in expected horizons between a CEO and her subordinates. Consistent with our conjecture, we find robust evidence that subordinate managers with longer horizon compared to the CEO can improve firm’s innovation efficiency. Internal governance has a stronger effect on innovation efficiency for firms with elder, generalist CEOs and when the number of subordinates on the board is higher. However, while the presence of powerful CEOs attenuates the effect, overconfident CEOs do not negate the internal governance effect. Our proposed internal governance mechanism seems to be able to address the managerial myopia issue in corporate settings

Two Essays on Stock Market Liquidity

This dissertation is composed of two essays. In the first essay, we use the introduction of the first transatlantic trading platform NYSE Arca Europe (NAE), as an exogenous shock to examine the impact of market design on commonality in liquidity. We find that commonality in liquidity increases significantly for stocks traded in the NAE, specifically, the introduction of the transatlantic NAE trading platform increases the comovement of NAE stocks with NAE aggregate liquidity while their comovement with the home market aggregate liquidity decreases. Further, we find that the commonality in liquidity remains unchanged for matched non-NAE control sample stocks. Our results are robust to different methods for computing commonality, different liquidity proxies and across size quintiles. We conclude that market design and trading infrastructure has a significant impact on commonality in liquidity. The second essay investigates the impact of internal governance on stock market liquidity. Acharya, Myers and Rajan (2011) develop a model of internal governance where subordinate managers can effectively monitor the CEO to maintain the future of the firm. Using a measure of internal governance based on the difference in horizons between a CEO and his subordinates, we show that firms with better internal governance have lower information asymmetry and higher liquidity. We also show that internal governance is more effective in enhancing liquidity for firms with CEOs close to retirement, firms that require higher firm-specific skills, and firms with experienced subordinate managers. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of internal governance and liquidity

Executives\u27 horizon, internal governance and stock market liquidity

In this article, we examine whether internal governance, the process through which subordinate managers effectively monitor the chief executive officer (CEO), can improve a firm\u27s liquidity. Using the difference in horizons between a CEO and his immediate subordinates to measure internal governance, we show that firms with better internal governance have lower information asymmetry and higher liquidity. Further, we show that internal governance is effective in enhancing liquidity for firms with CEOs close to retirement, firms that require higher firm-specific skills, and firms with experienced subordinate managers. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of internal governance and liquidity

Commonality in liquidity and multilateral trading facilities

We use the introduction of two multilateral trading facilities (MTFs) to examine the impact of market fragmentation on commonality in liquidity. We find that the introduction of MTFs following the Markets in Financial Instruments Directive increases the comovement of stocks’ liquidity with MTF liquidity, while the comovement with the home market liquidity generally decreases. We also find that the higher the MTF trading volume or the number of MTFs trading a stock, the stronger the effect. Further, we find that the commonality in liquidity remains unchanged for a matched control sample of stocks that do not trade on MTFs

Commonality in liquidity and multilateral trading facilities

We use the introduction of two multilateral trading facilities (MTFs) to examine the impact of market fragmentation on commonality in liquidity. We find that the introduction of MTFs following the Markets in Financial Instruments Directive increases the comovement of stocks’ liquidity with MTF liquidity, while the comovement with the home market liquidity generally decreases. We also find that the higher the MTF trading volume or the number of MTFs trading a stock, the stronger the effect. Further, we find that the commonality in liquidity remains unchanged for a matched control sample of stocks that do not trade on MTFs

Count on Your Subordinates: Young Managers and Innovation Efficiency

We investigate the relationship between executives’ horizons and firms’ innovation efficiency. Motivated by Acharya, Myers, and Rajan’s (2011, JF) theory, we devise a measure of internal governance based on the difference in expected horizons between a CEO and her subordinates. Consistent with our conjecture, we find robust evidence that subordinate managers with longer horizon compared to the CEO can improve firm’s innovation efficiency. Internal governance has a stronger effect on innovation efficiency for firms with elder, generalist CEOs and when the number of subordinates on the board is higher. However, while the presence of powerful CEOs attenuates the effect, overconfident CEOs do not negate the internal governance effect. Our proposed internal governance mechanism seems to be able to address the managerial myopia issue in corporate settings

Commonality in liquidity and multilateral trading facilities

We use the introduction of two multilateral trading facilities (MTFs) to examine the impact of market fragmentation on commonality in liquidity. We find that the introduction of MTFs following the Markets in Financial Instruments Directive increases the comovement of stocks’ liquidity with MTF liquidity, while the comovement with the home market liquidity generally decreases. We also find that the higher the MTF trading volume or the number of MTFs trading a stock, the stronger the effect. Further, we find that the commonality in liquidity remains unchanged for a matched control sample of stocks that do not trade on MTFs

Subordinate executives’ horizon and firm policies

Motivated by the internal governance theory, we investigate the links between subordinate executives\u27 horizon and firm policies. Using the number of years to retirement to capture subordinate executives\u27 horizon inside the firm, we find that subordinates\u27 horizon is positively associated with firm\u27s risk-taking, long-term investments growth, and research and development productivity, but negatively related to the dividend decision and the payout ratio. We also find a positive relationship between subordinates\u27 horizon and firm value. Our results are robust to controlling for alternative explanations including the pay gap between CEO and subordinate executives, executives\u27 overconfidence, CEO\u27s decision horizon, and other governance mechanisms. The results are also robust to alternative measures of subordinates\u27 horizon, and after addressing potential endogeneity concerns