This paper presents a contracting model of governance based on the premise that CEOs are the main promoters of governance change. CEOs use their power to extract higher pay or private benefits, and different governance structures are preferred by different CEOs as they favor one or the other type of compensation. The model explains why good countrywide investor protection breeds good firm gover...

One in four U.S. high-tech firms are led by CEOs with hands-on innovation experience as inventors. We show that these “Inventor CEOs” stimulate higher quality firm-level innovation, especially when they have a personal history of high-impact patents. A CEO’s technology-class specific inventor experience also predicts the technology classes in which a firm has its greatest innovation success. Ut...

Are CEOs’ attitudes and beliefs linked to their firms’ innovative performance? This paper uses Malmendier and Tate’s measure of overconfidence, based on CEO stockoption exercise, to study the relationship between a CEO’s “revealed beliefs” about future performance and standard measures of corporate innovation. We begin by developing a career concern model where CEOs innovate to provide evidence...

Does culture shape risk preferences? While economic models of the origins of preferences point to an important role of culture, supporting empirical evidence is largely missing for risk and time preferences. In this study, we exploit variation in cultural heritage across CEOs of public U.S. companies and demonstrate an important effect of CEOs’ culturally transmitted risk preferences on corpora...

This study adds to the literature demonstrating the adverse market reaction to acquisitions by overconfident CEOs (e.g., Malmendier and Tate, 2008). In particular, it explores the parallel role played by overconfident target firm CEOs in explaining the premium paid, and value destruction in such deals, and, most importantly, the “perfect storm” of the interaction between the two overconfident p...

We compare the proceeds that CEOs realize from exercising stock options with the total nominal value (estimated fair value) of option pay that they receive during their tenures. For a sample of CEOs who completed their tenures during the period from 1992 to 2007, we find that the amount realized from exercising options is about 68% of the nominal value of options received and that realized tota...

Previous theoretical and empirical studies suggest that CEOs' political connections are valuable to firms. We examine whether such connections become entrenched if the expected political capital fails to materialize and the firm lacks other types of political power. Using a sample of listed non-SOEs in China, we show that politically connected CEOs have a lower probability of turnover and cause...

I examine the role of CEO speaking style on market valuation of their firms. Analyzing and quantifying the speaking style of CEOs using Flesch Kincaid Grade Level, a measure of speech sophistication, I find that verbal ability is correlated to the education levels of CEOs. I also find that after controlling for industry specific differences in CEO speaking style, the market places a higher valu...

Title of dissertation: SELECTION OF STAR CEOS AND ITS IMPLICATIONS ON FIRM PERFORMANCE AND CEO COMPENSATION Minwen Li, Doctor of Philosophy, 2010 Dissertation directed by: Professor Vojislav Maksimovic, Dean's Chair Professor of Finance, Department of Finance My dissertation examines a board’s decision to hire a star CEO and the implication of such decision on the new CEO compensation and firm ...

We employ a unique sample of 220 top brass executives in 121 UK M&As 1997-2003 to investigate the wealth and employment gains of target CEOs and executive Chairmen. Chairmen are older and longer serving than CEOs and have double their equity exposure. Chairmen are prepared to sacrifice substantial cash gains but not shareholder premiums for future employment. CEOs are more concerned about finan...