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Table of Contents

Using Panel Data DEA to Measure CEOs’ Focus of Attention: An Application to the Study of Cognitive Group Membership and Performance

Jordi Surroca, Universidad Carlos III de Madrid - Department of Business Administration
Diego Prior, Autonomous University of Barcelona
Josep A. Tribo, Universidad Carlos III. Department of Business Administration

The Testosterone of the CEO and the Risk of the Firm

Y. Han (Andy) Kim, Nanyang Technological University (NTU)
Shinichi Kamiya, Nanyang Technological University (NTU) - Nanyang Business School

Media Sentiment and the Pricing of IPOs

Emanuele Bajo, University of Bologna - Department of Management
Carlo Raimondo, University of Bologna - Department of Management

Firm Performance in the Face of Fear

Ali Akansu, New Jersey Institute of Technology
Jim Cicon, New Jersey Institute of Technology
Steven Ferris, University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business
Yanjia Sun, New Jersey Institute of Technology

The Effects of Current and Expanded Analyst Ownership Disclosure on Nonprofessional Investors’ Judgments and Decision-Making

Robert Marley, University of Tampa
Mark J. Mellon, University of South Florida

Managerial Overconfidence and Audit Fees

Scott Duellman, Saint Louis University - Department of Accounting
Helen Hurwitz, Saint Louis University
Yan Sun, Saint Louis University


CORPORATE GOVERNANCE & SOCIOLOGY OR PSYCHOLOGY eJOURNAL
Sponsored by IRRC Institute

"Using Panel Data DEA to Measure CEOs’ Focus of Attention: An Application to the Study of Cognitive Group Membership and Performance" Free Download
Strategic Management Journal (2015), Forthcoming

JORDI SURROCA, Universidad Carlos III de Madrid - Department of Business Administration
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DIEGO PRIOR, Autonomous University of Barcelona
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JOSEP A. TRIBO, Universidad Carlos III. Department of Business Administration
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In this study, we examine the existence and performance of cognitive groups. In accordance with the attention-based view of managerial cognition, cognitive groups are defined as groups of firms in which the CEOs focus their attention on similar strategic elements when seeking to maximize their firm’s competitive advantage. We developed a panel data extension of the original Data Envelopment Analysis to gauge CEOs’ focus of attention and then clustered firms into groups. We compared our approach, with other approaches that use content analysis of CEOs’ letters to shareholders and CEOs’ demographic characteristics to measure CEOs’ attention. Although the different approaches are related, indicating the existence of a common underlying construct (i.e., mental models), our approach explains a higher proportion of the variation in organizational performance.

"The Testosterone of the CEO and the Risk of the Firm" Free Download

Y. HAN (ANDY) KIM, Nanyang Technological University (NTU)
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SHINICHI KAMIYA, Nanyang Technological University (NTU) - Nanyang Business School
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Testosterone is a steroid hormone that affects male to aggressively take risks to achieve dominant status. We examine whether CEOs with higher testosterone level make the firms riskier. Since the facial width-to-height ratio (fWHR) of a male adult is determined by his pubertal testosterone exposure, we measure the fWHR male CEOs in both Execucomp and BoardEx that had CNBC interviews during 1997~2009. Controlling for sample selection bias, CEO’s preference for risky hobbies, and overconfidence, we find that high testosterone CEOs (1) increase firm risk; (2) maintain high leverage ratio; (3) are more acquisitive; and (4) receive high VEGA compensation.

"Media Sentiment and the Pricing of IPOs" Free Download

EMANUELE BAJO, University of Bologna - Department of Management
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CARLO RAIMONDO, University of Bologna - Department of Management
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We study a sample of 3.061 IPOs in the US stock markets in the period between 1995 and 2013 and the related coverage and tone from the New York Times. Based on 20.648 articles collected from one year before the filing to the IPO date we document that NYT coverage positively influences both underpricing and price revision. Likewise, applying a sentiment analysis based on financial word lists, we show how the tone of news also drives part of the first day returns and price revisions. Our results are consistent with a view in which more covered and positively reported IPOs are preferred by investors generating an increase on the demand side. These results hold after controlling for common underpricing and price revision economic rationales and also considering the informational effect of S-1 content disclosure.

"Firm Performance in the Face of Fear" Free Download

ALI AKANSU, New Jersey Institute of Technology
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JIM CICON, New Jersey Institute of Technology
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STEVEN FERRIS, University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business
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YANJIA SUN, New Jersey Institute of Technology
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We use facial emotion recognition software to quantify the facial emotional expressions of CEOs during video interviews. We find that 'fear' explains the firm's market performance. When CEOs convey increased fear, firm market value increases. We propose that a fearful CEO is a motivated CEO, and a motivated CEO increases firm value by increasing profit margins, return on equity and sales growth. Older CEOs are more fearful, tenured CEOs display greater anger and disgust, CEOs show more surprise when interviewed about corporate governance issues. Only the first two minutes of an interview matter.

"The Effects of Current and Expanded Analyst Ownership Disclosure on Nonprofessional Investors’ Judgments and Decision-Making" Free Download

ROBERT MARLEY, University of Tampa
Email:
MARK J. MELLON, University of South Florida
Email:

In two experiments, this study examines the effects of current and expanded analyst ownership disclosure on nonprofessional investors’ confidence in analyst recommendations and on the amount invested by nonprofessionals. Experiment one examines how nonprofessional investors interpret analyst ownership disclosures currently required by Title V of the Sarbanes-Oxley Act of 2002. The results of experiment one suggest that current ownership disclosure requirements have no significant effect on either investors’ confidence in analysts’ recommendations or on the amount ultimately invested in the firm recommended by the analyst. Experiment two extends the first experiment by expanding the granularity of the ownership disclosures provided to investors to incorporate two additional factors: ownership magnitude and ownership duration. Applying Rational Choice Theory, we find evidence of an interactive effect on investors’ judgments such that investors who receive a disclosure that an analyst holds a large, short-term investment in a recommended firm perceive the analyst is more likely to be engaging in puffery than investors who receive alternative disclosures. We also find evidence of mediated-moderation such that investors’ confidence in the analyst’s report mediates the effect of the disclosure on the amount invested. In sum, we find evidence to suggest analyst ownership disclosures affect capital market liquidity and we discuss the implications of our findings for regulators and market operators seeking to improve investor confidence and market liquidity.

"Managerial Overconfidence and Audit Fees" Free Download

SCOTT DUELLMAN, Saint Louis University - Department of Accounting
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HELEN HURWITZ, Saint Louis University
Email:
YAN SUN, Saint Louis University
Email:

We investigate the association between managerial overconfidence and audit fees, as well as the effect of a strong audit committee on this relation. Overconfident managers tend to overestimate their ability and the future payouts of projects but underestimate the likelihood and impact of adverse events. Auditors may therefore charge a fee premium to compensate for the additional audit effort due to the increased audit risk. Conversely, overconfident managers may demand less audit services due to either hubris in their companies’ financial reporting or a desire to reduce auditor scrutiny over aggressive accounting. A strong audit committee can alleviate the audit risks associated with managerial overconfidence or prevent overconfident managers from reducing audit services thus mitigating the relation between audit fees and managerial overconfidence. We find robust evidence of a negative relation between managerial overconfidence and audit fees for companies lacking a strong audit committee. However, in the presence of a strong audit committee the negative relation is mitigated. In additional analysis, we also find that companies with overconfident managers have a lower likelihood of using a city-industry specialist auditor.

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About this eJournal

Sponsored by: IRRC Institute

This eJournal distributes working and accepted paper abstracts that deal with all aspects of governance related to sociology and psychology. The journal welcomes research with a focus on using tools and methods from the fields of sociology and psychology to study corporate governance. Topics of interest include, but are not limited to, how corporate governance arrangements are shaped by or shape social norms, psychological inclinations, and cognitive perceptions.

Authors submitting their work to the CGN network should submit it to no more than two CGN eJournals. In particular, they should submit it to no more than one "methodological" CGN eJournal (CG & Accounting; CG & Economics; CG & Finance; CG & Law; CG & Management; CG & Sociology or Psychology; CG Educator; CG Practice Series), and should submit it to no more than one of the "sub-field" journals (Acquisitions, Mergers, Contests for Control, & Activism; Actors & Players; Arrangements & Laws; Bankruptcy, Financial Distress, & Reorganization; Capital Raising, Investments, Distributions, & Market Trading; Comparative; Compensation of Executives & Directors; Economic Consequences, History, Development, & Methodology; Disclosure, Internal Control, & Risk-Management; Governance, Organization, & Processes; Governance of Special Types of Firms; International/Non-US; or Social Responsibility & Social Impact).

Editor: Lucian A. Bebchuk, Harvard University

Submissions

To submit your research to SSRN, sign in to the SSRN User HeadQuarters, click the My Papers link on left menu and then the Start New Submission button at top of page.

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If your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com

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Corporate Governance Network (CGN), a division of Social Science Electronic Publishing (SSEP) and Social Science Research Network (SSRN)

Directors

CGN SUBJECT MATTER EJOURNALS

LUCIAN A. BEBCHUK
Harvard Law School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Email: bebchuk@law.harvard.edu

Please contact us at the above addresses with your comments, questions or suggestions for CGN-Sub.

Advisory Board

Corporate Governance & Sociology or Psychology eJournal

PATRICK BOLTON
Barbara and David Zalaznick Professor of Business, Columbia Business School - Department of Economics, Fellow, Centre for Economic Policy Research (CEPR), National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

BRIAN R. CHEFFINS
S.J. Berwin Professor of Corporate Law, University of Cambridge - Faculty of Law, Fellow, European Corporate Governance Institute (ECGI)

JOHN C. COFFEE
Adolf A. Berle Professor of Law and Director of the Center on Corporate Governance, Columbia Law School, Fellow, European Corporate Governance Institute (ECGI), Fellow, American Academy of Arts & Sciences

JULIAN R. FRANKS
Professor of Finance, London Business School, Fellow, Centre for Economic Policy Research (CEPR), Fellow, European Corporate Governance Institute (ECGI)

HENRY HANSMANN
Augustus E. Lines Professor of Law, Yale Law School, Fellow, European Corporate Governance Institute (ECGI)

OLIVER D. HART
Andrew E. Furer Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

BENGT R. HOLMSTRÖM
Paul A. Samuelson Professor of Economics, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)

KLAUS J. HOPT
Director (em.), Max Planck Institute for Comparative and International Private Law, European Corporate Governance Institute (ECGI)

MICHAEL C. JENSEN
Co-Founder, Chairman, Managing Director and Integrity Officer, Social Science Electronic Publishing (SSEP), Inc., Jesse Isidor Straus Professor of Business Administration, Emeritus, Harvard Business School, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

HIDEKI KANDA
Professor of Law, University of Tokyo - Graduate School of Law and Politics

STEVEN NEIL KAPLAN
Neubauer Family Professor of Entrepreneurship and Finance, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER)

RAKESH KHURANA
Marvin Bower Professor of Leadership Development, Harvard Business School

DAVID F. LARCKER
James Irvin Miller Professor of Accounting, Stanford University - Graduate School of Business

CHRISTIAN LEUZ
J. Sondheimer Professor of International Economics, Finance and Accounting, University of Chicago - Booth School of Business, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI), Fellow, Center for Financial Studies (CFS), Fellow, University of Pennsylvania - Wharton Financial Institutions Center, Fellow, CESifo Research Network

MARCO PAGANO
Professor of Economics, University of Naples Federico II - Department of Economics and Statistics, Director, Centre for Studies in Economics and Finance (CSEF), President, Einaudi Institute for Economics and Finance (EIEF), Fellow, Centre for Economic Policy Research (CEPR), Fellow, European Corporate Governance Institute (ECGI)

RAGHURAM G. RAJAN
Eric J. Gleacher Distinguished Service Professor of Finance, University of Chicago - Booth School of Business, International Monetary Fund (IMF), National Bureau of Economic Research (NBER)

ROBERTA ROMANO
Sterling Professor of Law and Director, Yale Law School Center for the Study of Corporate Law, Yale Law School, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

ANDREI SHLEIFER
Professor of Economics, Harvard University - Department of Economics, Fellow, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

LAURA T. STARKS
Charles E. and Sarah M. Seay Regents Chair in Finance, University of Texas at Austin - Department of Finance

RENE M. STULZ
Everett D. Reese Chair of Banking and Monetary Economics, Ohio State University (OSU) - Department of Finance, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

JEAN TIROLE
Scientific Director, University of Toulouse 1 - Industrial Economic Institute (IDEI), University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ), Fellow, Centre for Economic Policy Research (CEPR)

LUIGI ZINGALES
Robert C. McCormack Professor of Entrepreneurship and Finance and David G. Booth Faculty Fellow, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER), Fellow, Centre for Economic Policy Research (CEPR), University of Chicago - Polsky Center for Entrepreneurship, Fellow, European Corporate Governance Institute (ECGI)