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Research
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Lawyer CEOs with M. Todd Henderson, Irena Hutton, and Danling Jiang (Forthcoming, JFQA)
We examine the value of CEOs with specialized professional skills by focusing on CEOs with law degrees and their effect on corporate litigation. We find that lawyer CEOs are associated with both lower litigation frequency and less severe litigation. This relation is observed for most of nine types of common corporate litigation. This reduction in litigation is achieved, in part, through a decrease in activities that can lead to litigation, such as earnings management, and an increase in legal oversight by directors with legal expertise. Moreover, CEOs with legal training are associated with higher value in firms with high litigation risk and growth firms.
Working Papers
Working Papers
Utilizing the near universe of tax filings, we document both the extent of donations of art to non-profit organizations in the U.S. and their use as a method of tax avoidance. Non-profit organizations hold sizable assets, worth $12.4 trillion in 2019, with 2.65% identified as holding art, valued at $5.5 billion. While only 20% of organizations required to disclose the value of their collections and donations do so, these organizations consistently write down the value of artwork donations by 13%. This effect is amplified by donation valuation methods more likely to be influenced by the donor, but driven primarily by donations to private foundations, which write down by an average of 98.7% and avoid substantial amounts in taxes. Private foundations are associated with poor internal controls, with higher pay and benefits, more related executives, and a greater likelihood of being operated out of a tax haven. Tax losses due to avoidance is great, as back of the envelope calculations estimate between $1.4 billion and $3.9 billion in income tax losses over our 9 year sample.
With a new understanding of firm compliance responses to regulation, I find that Sarbanes-Oxley helped both identify and reduce abnormal returns to informed insider trading. The number of forms insiders file post-SOX increased by 175% per year, causing an 84% increase in firm compliance policies to handle the implicit costs to filing by selecting staff to oversee and orchestrate the trading of insiders. Insiders sign their own insider trading forms identify deviation from firm policy, and signal informed insider trading reaping abnormal annualized returns to their purchases (sales) of 9.6% (-10.8%). Using this novel measure to identify informed insider trading, Sarbanes-Oxley cuts abnormal returns nearly in half. I find that SOX does so by limiting insiders’ ability to sequence smaller trades multiple times, a previously undisclosed strategy. Sarbanes-Oxley’s insider trading provisions work as intended—to limit insiders from using their informational advantages to lucratively trade—and it does so by increasing both the amount and speed of disclosure.
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