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Table of Contents

Symbolic Corporate Governance Politics

Marcel Kahan, New York University School of Law, European Corporate Governance Institute
Edward B. Rock, University of Pennsylvania Law School

CEO Appearance

Douglas O. Cook, University of Alabama - Culverhouse College of Commerce & Business Administration
Shawn Mobbs, University of Alabama - Culverhouse College of Commerce and Business Administration

Bank CEO Optimism and the Financial Crisis

Yueran Ma, Harvard University

CEO Overconfidence and Corporate Social Responsibility

Barry R. Oliver, UQ Business School, Financial Research Network (FIRN)
Scott McCarthy, University of Queensland - Faculty of Business, Economics and Law
Sizhe Song, University of Queensland - Business School

Ex-Ante vs. Ex-Post Governance: A Behavioral Perspective

Sven Hoeppner, Ghent University Law School
Christian Kirchner, Humboldt University of Berlin - Faculty of Law, Humboldt University of Berlin - Faculty of Economics


CORPORATE GOVERNANCE & SOCIOLOGY OR PSYCHOLOGY eJOURNAL
Sponsored by IRRC Institute

"Symbolic Corporate Governance Politics" Free Download
U of Penn, Inst for Law & Econ Research Paper No. 14-6
NYU Law and Economics Research Paper No. 14-07

MARCEL KAHAN, New York University School of Law, European Corporate Governance Institute
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EDWARD B. ROCK, University of Pennsylvania Law School
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How are we to understand the persistent gap between rhetoric and reality that characterizes so much of corporate governance politics? In this Article, we show that the rhetoric around a variety of high profile corporate governance controversies (including shareholder proposals asking boards to redeem poison pills, proxy access, majority voting in director elections, and shareholder proposals to remove supermajority voting requirements) cannot be justified by the material interests at stake. At the same time, shareholder activists are oddly reluctant to pursue issues that may have a more material impact, such as anti-pill charter provisions or mandatory bylaw amendments. We consider a variety of explanations for this phenomenon including “public interest� analyses, “public choice� analyses, and the possibility that corporate governance politics has a substantial “symbolic� or “folkloristic� element. Elaborating on arguments made in Thurman Arnold’s The Folklore of Capitalism, we suggest that there is an analogous “Folklore of Corporate Governance� that serves to reconcile the gap between our idealized view of corporations as controlled by real-life shareholders and the inevitable reality that effective control largely resides in managements and in disembodied institutions. We consider some implications of the explanations we put forward.

"CEO Appearance" Free Download

DOUGLAS O. COOK, University of Alabama - Culverhouse College of Commerce & Business Administration
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SHAWN MOBBS, University of Alabama - Culverhouse College of Commerce and Business Administration
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Using an objective measure of executive facial attractiveness we find that shareholders value beauty. Specifically, attractive executives are associated with a higher abnormal return around the announcement of their appointment as CEO. These results are strongest for insider appointments and relatedly, more attractive facial features increase the likelihood of an executive winning a tournament and being selected as CEO. We also find that facial beauty is more important when there is a larger pool of qualified candidates with similar tangible skills and it is less important in firms where unique or technical skills are more valuable. Lastly, we discover some evidence that females are held to a higher standard of beauty than males. These results indicate that beauty is an important executive trait that has significant labor market and corporate finance implications.

"Bank CEO Optimism and the Financial Crisis" Free Download

YUERAN MA, Harvard University
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I test alternative theories about the recent financial crisis by studying how banks' pre-crisis investments connect to their CEOs' beliefs. Using different proxies for beliefs, I find that banks with larger increases in housing-related assets and worse outcomes had CEOs who were more optimistic ex ante. Banks with the most optimistic CEOs experienced 20 percentage points higher real estate loan growth, and 15 percentage points lower crisis-period stock returns. Bank decisions appear consistent with CEO beliefs, and CEOs' over-optimism contributed to losses. There is no evidence that CEOs made housing investments due to agency frictions while aware of impending problems.

"CEO Overconfidence and Corporate Social Responsibility" Free Download

BARRY R. OLIVER, UQ Business School, Financial Research Network (FIRN)
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SCOTT MCCARTHY, University of Queensland - Faculty of Business, Economics and Law
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SIZHE SONG, University of Queensland - Business School
Email:

CSR can work as a hedging instrument by mitigating negative effects of damaging events on firm value. Overconfident CEOs underestimate the risks faced by firms and do relatively less hedging. Thus, we find support for the hedging hypothesis and CEO overconfidence is negatively related to the level of CSR. This hedging hypothesis is further supported through analysis of institutional and technical components of CSR. Institutional components of CSR have a greater hedging opportunity over technical components. The negative relation between CEO overconfidence and CSR is stronger for institutional components relative to technical components of CSR. A barrage of robustness tests adds considerable supporting evidence to the results.

"Ex-Ante vs. Ex-Post Governance: A Behavioral Perspective" Free Download

SVEN HOEPPNER, Ghent University Law School
Email:
CHRISTIAN KIRCHNER, Humboldt University of Berlin - Faculty of Law, Humboldt University of Berlin - Faculty of Economics
Email:

Problems resulting from the delegation of competencies from one actor to another are at the heart of any governance discussion. While the conventional agency view stronger emphasizes that such problems can be solved ex-post by monitoring and control strategies, the contract view proposes to tackle said problems ex-ante through alignment of the agent's incentives to those of the principal by e.g. incentive contracts. No final conclusion has yet been reached about which approach is better suited to deal with the agency problem. In this paper, we introduce a behavioral perspective to this discussion. We will spotlight that the ex-post strategies are behaviorally dysfunctional. The effect of self-serving and hindsight tendencies can hardly be overcome. Ex-ante strategies, in contrast, suffer from problems of incentive design. However, proper incentive design can account for behavioral decision-patterns. On this ground we argue that incentive contracting appears to be superior to monitoring approaches to solve the principal-agent conflict. We propose a counterintuitive shift of certain dimensions of rule-making competencies: from public to private ordering for monitoring strategies and from private to public ordering for incentive contracting.

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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

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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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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. HOLMSTRĂ–M
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
Jesse Isidor Straus Professor of Business Administration, Emeritus, Harvard Business School, Co-Founder, Chairman, Managing Director and Integrity Officer, Social Science Electronic Publishing (SSEP), Inc., 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, 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)