Last updated: 09/17/2011
University of Texas at Dallas, School of Management
· "The Economics of Super Managers," with Glenn MacDonald and Jun Yang, Review of Financial Studies, 2011, vol. 24, no. 10, p. 3321-3368.
We study a competitive model in which managers differ in ability, choose firm size and unobservable effort. The model is an amalgam of agency and Superstars, and delivers many testable implications. For example, the model is useful for understanding why CEO pay has recently become more closely associated with firm size.
· "Renegotiation-proof Contracting, Disclosure, and Incentives for Efficient Investment," with Philip Dybvig and Jun Yang, Journal of Economic Theory, 2010, vol. 145, no.5, pp. 1805-1836.
We ask whether more disclosure can help address the inefficiencies in investment that arise when shareholders are less informed than the management. We find that, for disclosure to work, fairly radical changes to the current disclosure requirements are needed. Moreover, partial steps toward more disclosure may in fact lead to less efficient investment.
· "Consensus in Diverse Corporate Boards," with Philip Dybvig, Review of Financial Studies, 2009, vol. 22, no. 2, p.715-747.
We use a spatial model of board decision-making to analyze bargaining among multiple types of directors. Board decisions are modeled using a new bargaining solution concept called consensus. Among other things, our model suggests broadening the regulatory definition of independence of directors and requiring a supermajority of outsiders.
· "Organizing Multiple Related Tasks into Jobs: Diversification vs. Competition," Economics Letters, 2008, vol. 99, no.3, p. 599-603.
Agency models of multiple tasks typically assume independent outcomes. We show that correlation between outcomes can generate both economy and diseconomy of scale through diversification and competition effects. Additionally, the optimal compensation is non-monotone if the correlation is large.
· “Assessing the Role of Option Grants to CEOs: How Important is Heterogeneity?” with Siddhartha Chib, Journal of Empirical Finance, 2008, vol. 15, no. 2, pp. 145-166.
We revisit the question of whether CEO compensation packages are in keeping with agency theory. We develop and analyze a new panel Tobit model in which the heterogeneity of covariate effects across firms is modeled in a hierarchical way. We find that our specification provides a significantly improved fit to the data and shows support for several agency theory hypotheses.
· "Making the Grade: Product Quality Reporting by Infomediaries," with Ashutosh Prasad, resubmission encouraged subject to substantial revision, Management Science.
In practice, infomediaries, such as movie critics, often do not provide a fine-grained, numerical evaluation of the products that they evaluate, but instead their report is in the form of a discrete summary evaluation, such as thumbs up or thumbs down. We examine how this type of grading can best be done when the goal is maximization of consumer surplus.
· "Sliding-Scale Contracts in Movie Distribution: A Theoretical Rationale," with Seethu Seetharaman and Andrei Strijnev, resubmission encouraged subject to substantial revision, Management Science.
The motion picture industry is well known for its sliding scale revenue sharing agreements between distributors and exhibitors. Our game-theoretic model suggests that such agreements arise because they increase the efficiency of movie release timing.
· "Motivating Innovation in Newly Public Firms," with Robert Kieschnick and Rabih Moussawi.
Manso (2010) develops a theoretical model which shows that incentive compensation, long vesting periods for unexercised options, and tolerance for failure encourage a CEO to pursue innovative activities. We test these predictions on a sample of U.S. IPOs from 2000 to 2004, and find strong support for most of the hypotheses.
· "Screening of Possibly Incompetent Agents and Welfare Analysis without Common Priors," with Philip Dybvig.
We often think that people signal high ability if they accept a contract with a high incentives. However, people with extremely high opinions of their own ability may be incompetent. We show that, if the incompetent agent is cash-constrained, a modest incentive is offered to attract a more competent agent. If, however, the incompetent agent has a lot of cash, the firm is better off hiring the incompetent agent.
· "Product Market Interactions and the Propensity to Restructure in Bankruptcy," with Michael Rebello.
We know from the existing empirical literature that bankruptcy of a firm affects the firm's competitors, suppliers and customers. However, theoretical literature offers little guidance for interpreting the results, or forming new hypothesis. We develop a model of bankruptcy with two firms and use it to investigate how bankruptcy negotiations of one firm affects the other firm's value and likelihood of bankruptcy.
· "Capturing Heterogeneity in Leverage," with Yexiao Xu.
We argue that the low explanatory power of the leverage regressions reported in the existing literature stems not from poor explanatory variable selection, but rather from poor choice statistical models. Splitting firms into two groups based on firm size and dividend policy and allowing firms in each group respond differently to leverage determinants doubles the statistical power of the explanatory variables. By comparison, the improvement in explanatory power offered by several new variables proposed in the recent studies is an order of magnitude smaller.
· "Innovation, incentives and firm growth under competition," with Glenn MacDonald and Jun Yang.
· "Judicial Discretion," with Michael Rebello