PurposeThis paper aims to explore the important role boundaries play in back-office framing of en... more PurposeThis paper aims to explore the important role boundaries play in back-office framing of environmental engagement. This is of particular interest because it is not clear how organizations in an industry without standardized environmental reporting navigate their boundaries behind the scenes and why they engage with the environment the way they do. This element of their environmental identity offers important insights into the emergence of sustainability reporting.Design/methodology/approachGuided by Miles and Ringham (2019) the authors conduct an ethnography of the Montana ski industry. The ethnography includes extensive on-site observations at nine Montana ski areas and interviews with 16 ski area executives, two regulators and a land development executive.FindingsThe authors find three key boundaries – accountability structure, degree of regulatory burden and impact measurement approach – that shape the back-office economic and environmental framing of ski executives (Goffma...
Shareholders suffer huge losses when firms they own file Chapter 11. Interestingly, even sharehol... more Shareholders suffer huge losses when firms they own file Chapter 11. Interestingly, even shareholders of rival companies experience statistically significant losses. We examine how the bad news associated with a bankruptcy filing is transferred to the filing firm’s rivals. Using revisions in analysts’ earnings forecasts as a proxy for changes in expected future cash flows, we find that after a bankruptcy filing the market revises downward its cash flow expectations for rivals. Regression analysis confirms a positive relation between changes in expected cash flow and stock market reactions. These findings are consistent with our hypothesis that bad news associated with bankruptcy filings are transferred to rivals through reductions in expected future cash flows
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, a... more JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact
Using a regression interaction model and a biographical dataset, with which we can pinpoint perio... more Using a regression interaction model and a biographical dataset, with which we can pinpoint periods during which friendships were likely to have developed, we study the relation between company value and the interplay between CEO power, CEO equity incentives and the friendliness of the board of directors. Consistent with our hypotheses developed below, we find that firm value tends to increase when equity incentives are combined with a friendly board of directors, and conclude that the negative effects of CEO power on firm value reported by others are limited to firms with weak CEO equity incentive compensation plans and arms-length boards of directors. We are the first to combine these datasets and show that friendship between powerful CEOs and their boards, when agency problems are mitigated through CEO compensation, leads to higher value.
We examine potential information transfers from companies that announce dividend omissions to the... more We examine potential information transfers from companies that announce dividend omissions to their industry rivals. Specifically, we examine the abnormal stock returns and abnormal earnings forecast revisions of rivals after a company makes a dividend-omission announcement. Our results show negative and significant abnormal stock returns and negative and significant abnormal forecast revisions for rival companies in response to the announcement,
This study examines the relation between changes in industry-adjusted operating performance assoc... more This study examines the relation between changes in industry-adjusted operating performance associated with corporate spin-offs and the market’s assessment of the spin-off as either a value increasing or value decreasing activity. I find that the average change in industry-adjusted operating performance associated with my sample of spin-offs is not significantly different from zero. However, I also present evidence suggesting that this average result is misleading because some spin-offs appear to be value increasing while others are value decreasing. I establish that a positive and significant relation exists between parent company revaluation and a) the change in industry-adjusted operating performance of the combined but independent units, and, b) whether the parent and spun-off unit operated in different lines of business. Tests for the sensitivity of the results to underlying assumptions show that these results are robust. I conclude that some spin-offs create value, especially ...
1. “Earnings Management and Seasoned Bond Offerings: Do Managers Mislead the Bond Market?” with C... more 1. “Earnings Management and Seasoned Bond Offerings: Do Managers Mislead the Bond Market?” with Chiraphol Chiyachantana, Chua Choong Tze, and Jeremy Goh, Journal of Financial and Quantitative Analysis, Volume 46, Number 3, pages 687-708, 2011. 2. “Management Compensation, Restructuring, and Value Creation at Union Carbide Corporation”, Journal of Corporate Ownership and Control, Volume 6, Issue 3, pages 561569, 2009. 3. “Corporate Governance, Shareholder Rights, and Shareholder Rights Plans: Poison, Placebo, or Prescription?" with Jeremy Goh, Journal of Financial and Quantitative Analysis, Volume 43, Number 2, pages 381-400, 2008. 4. “Liquidity and the Choice to Abandon Production in Declining Industries”, Journal of Corporate Ownership and Control, Volume 5, Issue 1, pages 418-431, 2007. 5. “Dividend Omissions and Intra-industry Signaling” with Jeremy Goh and Ninon Kohers, Journal of Financial Research, Volume 26, Number 1, pages 51-64, 2003. 6. “The Effectiveness of Instituti...
The study presents tests of several theoretical hypotheses that are potential determinants of the... more The study presents tests of several theoretical hypotheses that are potential determinants of the choice to abandon production in declining industries. A binary qualitative choice model of the abandonment decision is estimated. The probability of choosing abandonment is found to be positively related to the firm's debt ratio, and negatively related to liquidity at the firm level, the level of efficiency of the operating unit, and uncertainty about liquidity at the operating unit level as measured by output and input price variability. Results are also presented for a multinomial choice model accounting for the full menu of capacity decisions open to the firm over time. The results are robust across all specifications as well as to alternative statistical assumptions.
Review of Quantitative Finance and Accounting, Feb 1, 2003
We use revisions in analysts' earnings forecasts to examine how the bad n... more We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies
Studies on the announcement effects of bankruptcy filings have found that when a firm files for C... more Studies on the announcement effects of bankruptcy filings have found that when a firm files for Chapter 11 bankruptcy protection its shareholders suffer significant losses. A recent paper extends these findings by investigating the announcement effect on rival companies, while another examines the equity performance of firms emerging from bankruptcy. We combine these two lines of inquiry by examining the effect on rivals when a firm emerges from the protection of Chapter 11. We find both significant negative stock market returns and significant negative revisions in analysts’ earnings forecasts for rivals of successfully reorganized companies.
The paper is a case study of the Union Carbide Corporation during a very tumultuous period. In 19... more The paper is a case study of the Union Carbide Corporation during a very tumultuous period. In 1979, the demand for several of UCC’s chemical products either was in decline or soon would be which contributed to a severe decline in stock value. During this period, management compensation plans evolved to more closely align management with shareowners. The Bhopal tragedy and a subsequent unsolicited takeover attempt tested management, and the new compensation incentives, ultimately leading to a more focused and more highly valued company.
We study the relation between company corporate governance and company valuation and operating pe... more We study the relation between company corporate governance and company valuation and operating performance surrounding and after open market share repurchase program announcements. Our results show that well-governed firms outperform poorly-governed firms subsequent to share repurchase announcements. We measure corporate governance using the Bebchuk, Cohen, and Ferrell (2009) entrenchment index. For our full sample period, 1991-2006: (1) abnormal stock returns calculated in the three days surrounding the share repurchase announcement date, (2) abnormal stock returns calculated for 12, 24, and 36 months after the announcement, and (3) adjusted operating performance (operating performance) calculated for 4, 8, and 12 quarters after the announcement are all significantly higher for firms with stronger relative to weaker governance. We conclude that the managers of firms with stronger corporate governance profiles select to engage in share repurchase programs that create value for share...
We examine the effect of poison pill adoptions on firm value, controlling for the adopting firm&#... more We examine the effect of poison pill adoptions on firm value, controlling for the adopting firm's preexisting corporate governance structure. We find that only companies with the most democratic governance structures, defined as those with the fewest preexisting protective governance provisions, experience significantly positive abnormal stock returns and significantly positive abnormal revisions in five-year earnings growth rate forecasts. Moreover, regression
PurposeThis paper aims to explore the important role boundaries play in back-office framing of en... more PurposeThis paper aims to explore the important role boundaries play in back-office framing of environmental engagement. This is of particular interest because it is not clear how organizations in an industry without standardized environmental reporting navigate their boundaries behind the scenes and why they engage with the environment the way they do. This element of their environmental identity offers important insights into the emergence of sustainability reporting.Design/methodology/approachGuided by Miles and Ringham (2019) the authors conduct an ethnography of the Montana ski industry. The ethnography includes extensive on-site observations at nine Montana ski areas and interviews with 16 ski area executives, two regulators and a land development executive.FindingsThe authors find three key boundaries – accountability structure, degree of regulatory burden and impact measurement approach – that shape the back-office economic and environmental framing of ski executives (Goffma...
Shareholders suffer huge losses when firms they own file Chapter 11. Interestingly, even sharehol... more Shareholders suffer huge losses when firms they own file Chapter 11. Interestingly, even shareholders of rival companies experience statistically significant losses. We examine how the bad news associated with a bankruptcy filing is transferred to the filing firm’s rivals. Using revisions in analysts’ earnings forecasts as a proxy for changes in expected future cash flows, we find that after a bankruptcy filing the market revises downward its cash flow expectations for rivals. Regression analysis confirms a positive relation between changes in expected cash flow and stock market reactions. These findings are consistent with our hypothesis that bad news associated with bankruptcy filings are transferred to rivals through reductions in expected future cash flows
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, a... more JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact
Using a regression interaction model and a biographical dataset, with which we can pinpoint perio... more Using a regression interaction model and a biographical dataset, with which we can pinpoint periods during which friendships were likely to have developed, we study the relation between company value and the interplay between CEO power, CEO equity incentives and the friendliness of the board of directors. Consistent with our hypotheses developed below, we find that firm value tends to increase when equity incentives are combined with a friendly board of directors, and conclude that the negative effects of CEO power on firm value reported by others are limited to firms with weak CEO equity incentive compensation plans and arms-length boards of directors. We are the first to combine these datasets and show that friendship between powerful CEOs and their boards, when agency problems are mitigated through CEO compensation, leads to higher value.
We examine potential information transfers from companies that announce dividend omissions to the... more We examine potential information transfers from companies that announce dividend omissions to their industry rivals. Specifically, we examine the abnormal stock returns and abnormal earnings forecast revisions of rivals after a company makes a dividend-omission announcement. Our results show negative and significant abnormal stock returns and negative and significant abnormal forecast revisions for rival companies in response to the announcement,
This study examines the relation between changes in industry-adjusted operating performance assoc... more This study examines the relation between changes in industry-adjusted operating performance associated with corporate spin-offs and the market’s assessment of the spin-off as either a value increasing or value decreasing activity. I find that the average change in industry-adjusted operating performance associated with my sample of spin-offs is not significantly different from zero. However, I also present evidence suggesting that this average result is misleading because some spin-offs appear to be value increasing while others are value decreasing. I establish that a positive and significant relation exists between parent company revaluation and a) the change in industry-adjusted operating performance of the combined but independent units, and, b) whether the parent and spun-off unit operated in different lines of business. Tests for the sensitivity of the results to underlying assumptions show that these results are robust. I conclude that some spin-offs create value, especially ...
1. “Earnings Management and Seasoned Bond Offerings: Do Managers Mislead the Bond Market?” with C... more 1. “Earnings Management and Seasoned Bond Offerings: Do Managers Mislead the Bond Market?” with Chiraphol Chiyachantana, Chua Choong Tze, and Jeremy Goh, Journal of Financial and Quantitative Analysis, Volume 46, Number 3, pages 687-708, 2011. 2. “Management Compensation, Restructuring, and Value Creation at Union Carbide Corporation”, Journal of Corporate Ownership and Control, Volume 6, Issue 3, pages 561569, 2009. 3. “Corporate Governance, Shareholder Rights, and Shareholder Rights Plans: Poison, Placebo, or Prescription?" with Jeremy Goh, Journal of Financial and Quantitative Analysis, Volume 43, Number 2, pages 381-400, 2008. 4. “Liquidity and the Choice to Abandon Production in Declining Industries”, Journal of Corporate Ownership and Control, Volume 5, Issue 1, pages 418-431, 2007. 5. “Dividend Omissions and Intra-industry Signaling” with Jeremy Goh and Ninon Kohers, Journal of Financial Research, Volume 26, Number 1, pages 51-64, 2003. 6. “The Effectiveness of Instituti...
The study presents tests of several theoretical hypotheses that are potential determinants of the... more The study presents tests of several theoretical hypotheses that are potential determinants of the choice to abandon production in declining industries. A binary qualitative choice model of the abandonment decision is estimated. The probability of choosing abandonment is found to be positively related to the firm's debt ratio, and negatively related to liquidity at the firm level, the level of efficiency of the operating unit, and uncertainty about liquidity at the operating unit level as measured by output and input price variability. Results are also presented for a multinomial choice model accounting for the full menu of capacity decisions open to the firm over time. The results are robust across all specifications as well as to alternative statistical assumptions.
Review of Quantitative Finance and Accounting, Feb 1, 2003
We use revisions in analysts' earnings forecasts to examine how the bad n... more We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies
Studies on the announcement effects of bankruptcy filings have found that when a firm files for C... more Studies on the announcement effects of bankruptcy filings have found that when a firm files for Chapter 11 bankruptcy protection its shareholders suffer significant losses. A recent paper extends these findings by investigating the announcement effect on rival companies, while another examines the equity performance of firms emerging from bankruptcy. We combine these two lines of inquiry by examining the effect on rivals when a firm emerges from the protection of Chapter 11. We find both significant negative stock market returns and significant negative revisions in analysts’ earnings forecasts for rivals of successfully reorganized companies.
The paper is a case study of the Union Carbide Corporation during a very tumultuous period. In 19... more The paper is a case study of the Union Carbide Corporation during a very tumultuous period. In 1979, the demand for several of UCC’s chemical products either was in decline or soon would be which contributed to a severe decline in stock value. During this period, management compensation plans evolved to more closely align management with shareowners. The Bhopal tragedy and a subsequent unsolicited takeover attempt tested management, and the new compensation incentives, ultimately leading to a more focused and more highly valued company.
We study the relation between company corporate governance and company valuation and operating pe... more We study the relation between company corporate governance and company valuation and operating performance surrounding and after open market share repurchase program announcements. Our results show that well-governed firms outperform poorly-governed firms subsequent to share repurchase announcements. We measure corporate governance using the Bebchuk, Cohen, and Ferrell (2009) entrenchment index. For our full sample period, 1991-2006: (1) abnormal stock returns calculated in the three days surrounding the share repurchase announcement date, (2) abnormal stock returns calculated for 12, 24, and 36 months after the announcement, and (3) adjusted operating performance (operating performance) calculated for 4, 8, and 12 quarters after the announcement are all significantly higher for firms with stronger relative to weaker governance. We conclude that the managers of firms with stronger corporate governance profiles select to engage in share repurchase programs that create value for share...
We examine the effect of poison pill adoptions on firm value, controlling for the adopting firm&#... more We examine the effect of poison pill adoptions on firm value, controlling for the adopting firm's preexisting corporate governance structure. We find that only companies with the most democratic governance structures, defined as those with the fewest preexisting protective governance provisions, experience significantly positive abnormal stock returns and significantly positive abnormal revisions in five-year earnings growth rate forecasts. Moreover, regression
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Papers by Gary Caton