Three Essays on Corporate Governance

HWANG, SEOK-HYUN

doi:https://doi.org/10.21985/n2-9qqs-1n69

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Three Essays on Corporate Governance

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This dissertation consists of three essays on corporate governance. In the first essay of the dissertation (“The Effects of Succession Planning on CEO Succession Events: Implications for Both Focal and Competing Firms”), I examine whether and how both focal and competing firms are affected by sudden CEO deaths. By using a hand-collected sample of sudden CEO deaths between 1993 and 2016, I first attempt to capture the value of CEO succession planning by analyzing investor reactions to the announcements of sudden CEO deaths. Specifically, I suggest that by having (a) a succession plan and (b) an heir apparent (i.e., a COO and/or a president), firms may be able to reduce uncertainty and instability that may be caused by CEO succession events, especially unplanned ones. Then, I consider whether and how the sudden CEO deaths at focal firms affect competing firms operating in the same industry. Because CEO succession events likely cause a significant disruption to the focal firms, competing firms may find an opportunity to get ahead at the expense of the focal firms. The results generally support my hypotheses, indicating that CEO succession planning matters in reducing the perceived uncertainty and instability of CEO succession events and that the effects of CEO succession events can go beyond the focal firms and affect competing firms that are not directly involved in the events. In the second chapter (“Don’t Mess with Status-Seekers: Outside Directors’ Status Anxiety and CEO Dismissal Following a Loss in Firm Status”), I analyze how a loss in firm status affects the likelihood of CEO dismissal. My theoretical argument suggests that because firm-level status loss may cause outside directors’ own status to deflate, status-anxious outside directors will be more likely to dismiss the CEO following a loss in a firm’s status, independent of its financial condition. To examine the mechanism in more detail, I further theorize that the hypothesized effect will be stronger for firms that have been subject to greater media attention, which likely amplifies the outside directors’ anxiety. In contrast, I posit that the hypothesized effect will be weaker when boards have a large proportion of high-status outside directors, because their own status psychologically insulates them from the prospect of losing status through negative status spillover. An analysis of a matched sample of firms that did and did not lose their S&P 500 membership between 1997 and 2012 strongly supports my predictions. This study’s theory and findings shed light on the importance of non-financial objectives on board decisions. In the last chapter of the dissertation (“Who Maintains Marketability? Shareholder Activism and Labor Market Consequences of Outside Directors”), I examine the effects of shareholder activism on outside directors’ labor market outcomes. In particular, I focus on the individual-level heterogeneity of labor market outcomes. By conceptualizing shareholder activism as a reputation-damaging event for outside directors, I first suggest that outside directors experiencing shareholder activism likely bear a labor market penalty in the post-activism period. Then, by highlighting the resource-provisioning role of outside directors, I posit that, given the high demand for prestigious outside directors, outside directors with prestige may experience less severe penalty in the director market even after experiencing shareholder activism. Similarly, outside directors with minority status (female and/or ethnic minority) likely experience the reduced penalty given the increasing demand for board diversity. By combining matching and difference-in-differences approaches, I find support for all my hypotheses. Specifically, I find that while outside directors experiencing shareholder activism, on average, exhibit a significant reduction in the number of board seats, such labor market penalty is reduced for outside directors having prestige or minority status.

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