Pub Date : 2025-11-08DOI: 10.1016/j.jcorpfin.2025.102917
Sergey Gelman , Russell Fralich , Alex Bitektine , Sara Zahraei
We find that the expected contribution of new CEO's experience to firm value depends on the degree of managerial challenge faced in the hiring firm. We identify two firm dimensions of such challenge: 1) firm complexity and 2) prior poor performance of the firm. Using a multi-industry 15-year sample of 1095 newly appointed CEOs of U.S. public firms, we find that CEO's experience benefits investors only when the firm is complex and/or struggling. The more complexity or performance challenge the firm is facing, the greater is the positive effect of CEO generalist experience on shareholder value.
{"title":"When does a generalist CEO create shareholder value? The effect of managerial challenge","authors":"Sergey Gelman , Russell Fralich , Alex Bitektine , Sara Zahraei","doi":"10.1016/j.jcorpfin.2025.102917","DOIUrl":"10.1016/j.jcorpfin.2025.102917","url":null,"abstract":"<div><div>We find that the expected contribution of new CEO's experience to firm value depends on the degree of managerial challenge faced in the hiring firm. We identify two firm dimensions of such challenge: 1) firm complexity and 2) prior poor performance of the firm. Using a multi-industry 15-year sample of 1095 newly appointed CEOs of U.S. public firms, we find that CEO's experience benefits investors only when the firm is complex and/or struggling. The more complexity or performance challenge the firm is facing, the greater is the positive effect of CEO generalist experience on shareholder value.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"97 ","pages":"Article 102917"},"PeriodicalIF":5.9,"publicationDate":"2025-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145578360","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-04DOI: 10.1016/j.jcorpfin.2025.102915
Anand M. Goel , Hongju Ren
We document that culture and cultural perception both influence financial decisions. We examine the impact of clan culture, an important dimension of Chinese culture, on individual lending behavior. Using data from RenRenDai, a leading peer-to-peer lending platform in China, we find that borrowers from regions with higher clan culture are more likely to get loans funded, attract larger bids from lenders, get loans funded faster, are less likely to default, and repay a larger fraction of their loans. These effects are more pronounced when there is greater information asymmetry, borrowers are older or from rural areas, and the legal environment is weaker. These results are robust to alternative measures of clan culture. Lenders rely less on culture as a signal of creditworthiness for borrowers with observable default history. Our results suggest that clan culture acts as a substitute for formal institutional mechanisms and participants in the peer-to-peer market use information about clan culture as a proxy for economic factors, improving efficiency of financial decisions.
{"title":"Impact of culture in peer-to-peer lending","authors":"Anand M. Goel , Hongju Ren","doi":"10.1016/j.jcorpfin.2025.102915","DOIUrl":"10.1016/j.jcorpfin.2025.102915","url":null,"abstract":"<div><div>We document that culture and cultural perception both influence financial decisions. We examine the impact of clan culture, an important dimension of Chinese culture, on individual lending behavior. Using data from RenRenDai, a leading peer-to-peer lending platform in China, we find that borrowers from regions with higher clan culture are more likely to get loans funded, attract larger bids from lenders, get loans funded faster, are less likely to default, and repay a larger fraction of their loans. These effects are more pronounced when there is greater information asymmetry, borrowers are older or from rural areas, and the legal environment is weaker. These results are robust to alternative measures of clan culture. Lenders rely less on culture as a signal of creditworthiness for borrowers with observable default history. Our results suggest that clan culture acts as a substitute for formal institutional mechanisms and participants in the peer-to-peer market use information about clan culture as a proxy for economic factors, improving efficiency of financial decisions.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102915"},"PeriodicalIF":5.9,"publicationDate":"2025-11-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145575920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-25DOI: 10.1016/j.jcorpfin.2025.102912
Xue Cui , Sudipto Sarkar , Chuanqian Zhang
This paper analyzes a company's optimal investment and financing choices when both firm value and interest rates are stochastic, following the lognormal and mean-reverting processes respectively. The major new result is that the effect of interest rate on investment policy is non-monotonic, with optimal investment trigger initially increasing and subsequently decreasing in the interest rate level. This result is very different from an unlevered firm or a constant-interest-rate environment. Further, the degree of non-monotonicity increases with the volatility and long-term mean of the interest rate process. The investment trigger is also increasing in interest rate volatility and long-term mean, and initially increasing and subsequently decreasing in the speed of reversion of the interest rate process. The optimal leverage ratio is increasing in interest rate level and volatility, and decreasing in speed of reversion and long-term mean, while the effect of these parameters on optimal debt maturity period is just the opposite. We also find that the parameters of the interest-rate process (volatility, speed of reversion and long-term mean) have a larger impact on the optimal investment trigger than on the optimal leverage ratio.
{"title":"Interest rate uncertainty and the investment/financing decisions","authors":"Xue Cui , Sudipto Sarkar , Chuanqian Zhang","doi":"10.1016/j.jcorpfin.2025.102912","DOIUrl":"10.1016/j.jcorpfin.2025.102912","url":null,"abstract":"<div><div>This paper analyzes a company's optimal investment and financing choices when both firm value and interest rates are stochastic, following the lognormal and mean-reverting processes respectively. The major new result is that the effect of interest rate on investment policy is non-monotonic, with optimal investment trigger initially increasing and subsequently decreasing in the interest rate level. This result is very different from an unlevered firm or a constant-interest-rate environment. Further, the degree of non-monotonicity increases with the volatility and long-term mean of the interest rate process. The investment trigger is also increasing in interest rate volatility and long-term mean, and initially increasing and subsequently decreasing in the speed of reversion of the interest rate process. The optimal leverage ratio is increasing in interest rate level and volatility, and decreasing in speed of reversion and long-term mean, while the effect of these parameters on optimal debt maturity period is just the opposite. We also find that the parameters of the interest-rate process (volatility, speed of reversion and long-term mean) have a larger impact on the optimal investment trigger than on the optimal leverage ratio.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102912"},"PeriodicalIF":5.9,"publicationDate":"2025-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145417379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-24DOI: 10.1016/j.jcorpfin.2025.102914
Luofan Bu , Jeffrey Ng , Byron Y. Song , Mark Yuzhi Yan
Traditionally, fiduciaries' duty of loyalty requires them not to pursue business opportunities that could benefit their own companies. However, starting with Delaware in 2000, several states began allowing companies to waive this duty. We find that the debt structure of firms in waiver-adopting states shifts from public debt to bank debt, suggesting that these firms rely on more intense bank monitoring to address potential managerial disloyalty. The shift is more pronounced for firms with CEOs who are more likely to appropriate business opportunities and less pronounced for firms with stronger shareholder monitoring. We also find that bank debt mitigates the adverse effect of corporate opportunity waivers on shareholder wealth, the stock market reacts positively to the bank debt issuances of firms affected by these waivers, and corporate opportunity waiver laws increase the total debt market funding costs for affected firms. Collectively, our paper provides novel evidence that firms seek creditor governance to mitigate the loss of internal governance resulting from changes in the legal environment.
{"title":"Freedom is not free: Manager disloyalty and bank debt reliance","authors":"Luofan Bu , Jeffrey Ng , Byron Y. Song , Mark Yuzhi Yan","doi":"10.1016/j.jcorpfin.2025.102914","DOIUrl":"10.1016/j.jcorpfin.2025.102914","url":null,"abstract":"<div><div>Traditionally, fiduciaries' duty of loyalty requires them not to pursue business opportunities that could benefit their own companies. However, starting with Delaware in 2000, several states began allowing companies to waive this duty. We find that the debt structure of firms in waiver-adopting states shifts from public debt to bank debt, suggesting that these firms rely on more intense bank monitoring to address potential managerial disloyalty. The shift is more pronounced for firms with CEOs who are more likely to appropriate business opportunities and less pronounced for firms with stronger shareholder monitoring. We also find that bank debt mitigates the adverse effect of corporate opportunity waivers on shareholder wealth, the stock market reacts positively to the bank debt issuances of firms affected by these waivers, and corporate opportunity waiver laws increase the total debt market funding costs for affected firms. Collectively, our paper provides novel evidence that firms seek creditor governance to mitigate the loss of internal governance resulting from changes in the legal environment.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102914"},"PeriodicalIF":5.9,"publicationDate":"2025-10-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145417377","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-24DOI: 10.1016/j.jcorpfin.2025.102909
Muhan Hu, Linxiang Ma
We examine how competition affects the economic returns firms derive from their patented innovations. Using a stock market-based measure that reflects the discounted cash flows of newly granted patents, we document a robust negative relationship between competition intensity and the economic value of patents. To establish causality, we implement a quasi-experimental design and consider horizontal M&A as events that are likely to reduce competition for non-merging industry peers. Leveraging the random timing of peers’ patent grant dates within a narrow window around M&A announcements, we show that patents granted immediately after such events on average experience a 2.8% increase in value. This effect is stronger for deals that are more likely to be anti-competitive, but is absent for non-horizontal mergers that are unlikely to alter competition intensity. Overall, we offer new insights into the competition-innovation relationship by showing that competition weakens the economic returns that incentivize firm innovation.
{"title":"Competition and the value of innovation","authors":"Muhan Hu, Linxiang Ma","doi":"10.1016/j.jcorpfin.2025.102909","DOIUrl":"10.1016/j.jcorpfin.2025.102909","url":null,"abstract":"<div><div>We examine how competition affects the economic returns firms derive from their patented innovations. Using a stock market-based measure that reflects the discounted cash flows of newly granted patents, we document a robust negative relationship between competition intensity and the economic value of patents. To establish causality, we implement a quasi-experimental design and consider horizontal M&A as events that are likely to reduce competition for non-merging industry peers. Leveraging the random timing of peers’ patent grant dates within a narrow window around M&A announcements, we show that patents granted immediately after such events on average experience a 2.8% increase in value. This effect is stronger for deals that are more likely to be anti-competitive, but is absent for non-horizontal mergers that are unlikely to alter competition intensity. Overall, we offer new insights into the competition-innovation relationship by showing that competition weakens the economic returns that incentivize firm innovation.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102909"},"PeriodicalIF":5.9,"publicationDate":"2025-10-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145417378","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-22DOI: 10.1016/j.jcorpfin.2025.102913
Kyriacos Kyriacou, Siming Liu, Bryan Mase
An important aspect of the conduct of business in China is the need to develop relationships and make facilitation payments in the form of entertainment and gift giving. We use three different methods to extract firms' relationship spending from their reported entertainment and travel costs, and evaluate whether this spending enhances their ability to respond and adapt to changes in the business environment – their strategic flexibility. We employ a real options approach that identifies strategic flexibility as the firm's ability to take advantage of increased uncertainty, measured as its value gain associated with increased asset volatility. We document that relationship spending is positively associated with strategic flexibility in a way that is both significant and economically meaningful, consistent with rent-seeking behavior under institutional voids. This relation is both independent of, and supplemented by, firms' political connections, and is unaffected by the important anti-corruption campaigns implemented in 2013. The relation is nonlinear, strategic flexibility declining at very high levels of spending, implying firms become over-embedded in their relationships consistent with path dependence theory. Our findings are supported by detailed robustness testing, including quasi-exogenous variation, an instrumental variable approach, a decomposition of political connectedness and the estimation of alternative specifications. Thus, we identify a new source of firms' strategic flexibility and, relatedly, an important benefit that firms derive from the associated spending. This might explain why such spending is resilient, persisting despite ongoing attempts by the government to restrict it.
{"title":"Strategic flexibility: How rent-seeking behavior enables firms to adapt to uncertainty","authors":"Kyriacos Kyriacou, Siming Liu, Bryan Mase","doi":"10.1016/j.jcorpfin.2025.102913","DOIUrl":"10.1016/j.jcorpfin.2025.102913","url":null,"abstract":"<div><div>An important aspect of the conduct of business in China is the need to develop relationships and make facilitation payments in the form of entertainment and gift giving. We use three different methods to extract firms' relationship spending from their reported entertainment and travel costs, and evaluate whether this spending enhances their ability to respond and adapt to changes in the business environment – their strategic flexibility. We employ a real options approach that identifies strategic flexibility as the firm's ability to take advantage of increased uncertainty, measured as its value gain associated with increased asset volatility. We document that relationship spending is positively associated with strategic flexibility in a way that is both significant and economically meaningful, consistent with rent-seeking behavior under institutional voids. This relation is both independent of, and supplemented by, firms' political connections, and is unaffected by the important anti-corruption campaigns implemented in 2013. The relation is nonlinear, strategic flexibility declining at very high levels of spending, implying firms become over-embedded in their relationships consistent with path dependence theory. Our findings are supported by detailed robustness testing, including quasi-exogenous variation, an instrumental variable approach, a decomposition of political connectedness and the estimation of alternative specifications. Thus, we identify a new source of firms' strategic flexibility and, relatedly, an important benefit that firms derive from the associated spending. This might explain why such spending is resilient, persisting despite ongoing attempts by the government to restrict it.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102913"},"PeriodicalIF":5.9,"publicationDate":"2025-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145417376","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-22DOI: 10.1016/j.jcorpfin.2025.102911
Soomi Jang , Tunde Kovacs , Heeick Choi
This study uses an external shock, the 2008 Court of Appeals Federal Circuit (CAFC) ruling that weakened patent property rights of inventor-employees and strengthened those of employers, to examine employee option grants' effectiveness in motivating innovation. Firms that experience a decrease in the property rights of inventor-employees subsequently increase the value, number, delta, and vega of employee option grants, as well as innovation activities following the CAFC ruling. Our evidence suggests that employee stock option compensation is an important factor motivating employees to innovate.
{"title":"Employee stock options and innovation: Evidence from an exogenous shock to employee intellectual property rights","authors":"Soomi Jang , Tunde Kovacs , Heeick Choi","doi":"10.1016/j.jcorpfin.2025.102911","DOIUrl":"10.1016/j.jcorpfin.2025.102911","url":null,"abstract":"<div><div>This study uses an external shock, the 2008 Court of Appeals Federal Circuit (CAFC) ruling that weakened patent property rights of inventor-employees and strengthened those of employers, to examine employee option grants' effectiveness in motivating innovation. Firms that experience a decrease in the property rights of inventor-employees subsequently increase the value, number, delta, and vega of employee option grants, as well as innovation activities following the CAFC ruling. Our evidence suggests that employee stock option compensation is an important factor motivating employees to innovate.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102911"},"PeriodicalIF":5.9,"publicationDate":"2025-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145417374","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-21DOI: 10.1016/j.jcorpfin.2025.102908
Matthias Nadler, Katrin Schuler, Fabian Schär
Reliable asset price data are critical for the functioning of decentralized finance (DeFi) protocols, particularly those involving collateralized lending. The accuracy of blockchain-based price oracles directly affects key processes such as collateral valuation, liquidation, and risk management. This paper presents a comprehensive empirical analysis of Chainlink Price Feeds (CPFs), the dominant oracle infrastructure in DeFi. We compile a novel dataset of over 150 million observations from 40 CPFs on Ethereum over an 18-month period, matched to benchmark prices from a centralized exchange. To identify the determinants of oracle inaccuracy, we estimate pooled OLS and fixed effects regressions, relating price deviations to design parameters, reporter dynamics, and market conditions. We then introduce a Markov-like state transition framework to model the resolution of target corridor violations, using multinomial logistic regression to estimate transition probabilities. Finally, we exploit position-level data from one of the largest decentralized lending markets and apply entity fixed effects regressions to examine how users adjust collateralization in response to oracle design. Our findings highlight economically significant deviations that are systematically related to oracle accuracy configurations and market stress, and show that users internalize these risks in their financial decisions. The results offer new insights for the design of resilient oracle systems and the management of risk in decentralized financial markets.
{"title":"Blockchain price oracles: Accuracy and violation recovery","authors":"Matthias Nadler, Katrin Schuler, Fabian Schär","doi":"10.1016/j.jcorpfin.2025.102908","DOIUrl":"10.1016/j.jcorpfin.2025.102908","url":null,"abstract":"<div><div>Reliable asset price data are critical for the functioning of decentralized finance (DeFi) protocols, particularly those involving collateralized lending. The accuracy of blockchain-based price oracles directly affects key processes such as collateral valuation, liquidation, and risk management. This paper presents a comprehensive empirical analysis of Chainlink Price Feeds (CPFs), the dominant oracle infrastructure in DeFi. We compile a novel dataset of over 150 million observations from 40 CPFs on Ethereum over an 18-month period, matched to benchmark prices from a centralized exchange. To identify the determinants of oracle inaccuracy, we estimate pooled OLS and fixed effects regressions, relating price deviations to design parameters, reporter dynamics, and market conditions. We then introduce a Markov-like state transition framework to model the resolution of target corridor violations, using multinomial logistic regression to estimate transition probabilities. Finally, we exploit position-level data from one of the largest decentralized lending markets and apply entity fixed effects regressions to examine how users adjust collateralization in response to oracle design. Our findings highlight economically significant deviations that are systematically related to oracle accuracy configurations and market stress, and show that users internalize these risks in their financial decisions. The results offer new insights for the design of resilient oracle systems and the management of risk in decentralized financial markets.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102908"},"PeriodicalIF":5.9,"publicationDate":"2025-10-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145417375","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-18DOI: 10.1016/j.jcorpfin.2025.102910
Bilal Al Dah , Mustafa A. Dah , Konstantinos Stathopoulos
Recent diversity, equity, and inclusion (DEI) initiatives have resulted in significant board refreshment, specifically in the characteristics and qualities of board members across various dimensions. To facilitate these changes, U.S. boardrooms are increasingly appointing inexperienced rookie directors. Our findings indicate that rookie refreshment enhances board monitoring effectiveness, as evidenced by improved CEO turnover–performance sensitivity, better CEO incentives, and higher earnings quality. While rookie refreshment does not enhance the board's advising capacity, it does not hinder it either. These findings challenge DEI critics who argue that rookie appointments result in inefficient firm-director matching, thereby hampering corporate governance. Moreover, we show that boards continue to benefit from seasoned director refreshment to improve advising effectiveness, as reflected in firms' investment efficiency and acquisition activities and performance. Overall, we posit that rookie directors enhance board effectiveness when their presence refreshes the board's composition relative to its prior attributes.
{"title":"Rookie directors and board efficacy","authors":"Bilal Al Dah , Mustafa A. Dah , Konstantinos Stathopoulos","doi":"10.1016/j.jcorpfin.2025.102910","DOIUrl":"10.1016/j.jcorpfin.2025.102910","url":null,"abstract":"<div><div>Recent diversity, equity, and inclusion (DEI) initiatives have resulted in significant board refreshment, specifically in the characteristics and qualities of board members across various dimensions. To facilitate these changes, U.S. boardrooms are increasingly appointing inexperienced rookie directors. Our findings indicate that rookie refreshment enhances board monitoring effectiveness, as evidenced by improved CEO turnover–performance sensitivity, better CEO incentives, and higher earnings quality. While rookie refreshment does not enhance the board's advising capacity, it does not hinder it either. These findings challenge DEI critics who argue that rookie appointments result in inefficient firm-director matching, thereby hampering corporate governance. Moreover, we show that boards continue to benefit from seasoned director refreshment to improve advising effectiveness, as reflected in firms' investment efficiency and acquisition activities and performance. Overall, we posit that rookie directors enhance board effectiveness when their presence refreshes the board's composition relative to its prior attributes.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102910"},"PeriodicalIF":5.9,"publicationDate":"2025-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145359028","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-13DOI: 10.1016/j.jcorpfin.2025.102907
Shaoyi Wang
This study provides the first empirical evidence that directors' nationality significantly influences the profitability of insider trading. Using a large sample of reported stock transactions by directors of U.S.-listed firms between 1996 and 2023, I find that foreign directors earn statistically and economically lower abnormal returns following their trades compared to their domestic counterparts. The informational disadvantage of foreign directors appears only in firms with either a domestic CEO or CFO, lower board-level national diversity, when the directors work in overseas branches, and during the early stages of their tenure at the firm. These findings suggest that foreign directors face disadvantages in accessing private information due to the impact of national identity on information flow. I also find that this informational disadvantage only appears when foreign directors do not serve as top executives or independent directors and in firms with higher levels of information asymmetry. Further analysis suggests that the alternative explanation that foreign directors are less willing to trade on private information due to concerns about legal risks does not explain the findings. Moreover, trades by foreign directors are less likely to be classified as opportunistic or to follow a clustered trading pattern, consistent with the finding that they exploit private information to a lesser extent. Additionally, these trades trigger weaker market reactions compared to those executed by domestic directors. Finally, geographical distance and linguistic barriers are also found to influence foreign directors' ability to access and process information.
{"title":"National identity and foreign directors' access to private information","authors":"Shaoyi Wang","doi":"10.1016/j.jcorpfin.2025.102907","DOIUrl":"10.1016/j.jcorpfin.2025.102907","url":null,"abstract":"<div><div>This study provides the first empirical evidence that directors' nationality significantly influences the profitability of insider trading. Using a large sample of reported stock transactions by directors of U.S.-listed firms between 1996 and 2023, I find that foreign directors earn statistically and economically lower abnormal returns following their trades compared to their domestic counterparts. The informational disadvantage of foreign directors appears only in firms with either a domestic CEO or CFO, lower board-level national diversity, when the directors work in overseas branches, and during the early stages of their tenure at the firm. These findings suggest that foreign directors face disadvantages in accessing private information due to the impact of national identity on information flow. I also find that this informational disadvantage only appears when foreign directors do not serve as top executives or independent directors and in firms with higher levels of information asymmetry. Further analysis suggests that the alternative explanation that foreign directors are less willing to trade on private information due to concerns about legal risks does not explain the findings. Moreover, trades by foreign directors are less likely to be classified as opportunistic or to follow a clustered trading pattern, consistent with the finding that they exploit private information to a lesser extent. Additionally, these trades trigger weaker market reactions compared to those executed by domestic directors. Finally, geographical distance and linguistic barriers are also found to influence foreign directors' ability to access and process information.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"96 ","pages":"Article 102907"},"PeriodicalIF":5.9,"publicationDate":"2025-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145462856","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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