List of Publications
Selected Working Papers
Pension Risk and Corporate Investment Distortions
January 2018, with Demian Berchtold, Oliver Dichter, and Claudio Loderer
Failure to correct for pension risk leads to upward-biased discount rate estimates in firms with pension risk exposure. The result is a negative and economically significant relation between pension risk and corporate investment. The effect is confined to investment decisions that require discount rate estimates. Moreover, it is stronger if project value is more sensitive to such estimates. Because of this bias, firms miss valuable investment opportunities. The results survive robustness tests that address endogeneity concerns and alternative interpretations of the evidence. The general implication is that non-operating risks can distort corporate investment decisions. (Link to SSRN)
Employment Protection and Investment Opportunities
June 2017, with Claudio Loderer and Jonas Zeller
We examine the impact of employment protection legislation (EPL) on individual firms’ growth opportunities, as measured by Tobin’s q. On the one hand, by increasing job security, EPL spurs innovation effort. Yet that boost only occurs in firms with little comparative advantage at original innovation. The impact on q is therefore negligible. On the other hand, EPL increases restructuring costs and thereby reduces the firms’ operating and financial flexibility. EPL-induced loss of flexibility has a strong negative effect on q. The evidence shows that scaling down EPL has stimulated growth opportunities internationally. (Link to SSRN)
Luck and Entrepreneurship
February 2017, with Diego Liechti, Claudio Loderer, and Urs Peyer
What is luck in the opinion of entrepreneurs, how does it affect decisions, and what role does it play in firm performance? For an answer we rely on a unique survey of 63,202 individuals. Luck perceptions shape decisions. Individuals who believe luck is important are reluctant to become entrepreneurs, and those who do exhibit lower commitment. Luck perceptions also play a crucial role in important entrepreneurial activities. Interestingly, however, luck perceptions rank last in importance among various determinants of overall entrepreneurial performance. One possible reason is that entrepreneurs do not generally pursue radically new ideas but replicate ideas seen elsewhere. (Link to SSRN)
Core Abilities and Divestitures
October 2016, with Demian Berchtold and Claudio Loderer
Over time, firms increasingly focus on their core competences. This evolution impairs their ability to manage noncore assets, which they should therefore divest. We test this prediction and find consistent evidence. Moreover, mature firms divest more in response to exogenous technology shocks. These results are induced by structural and process rigidities that firms accumulate over time to better exploit their core competences. Rather than reinvesting, mature divesting firms return money to investors. Finally, the market reaction to divestitures by older firms is positive and positively related to rigidities. These findings contribute to a better understanding of the corporate lifecycle. (Link to SSRN)
Selected Publications
Firm Rigidities and the Decline in Growth Opportunities
Management Science 63, Issue 9, 2017, pages 3000-3020, with Claudio Loderer and René Stulz
As public firms exploit their growth opportunities following their initial public offering, their assets in place
increase, and they organize themselves optimally to operate these assets efficiently, which requires a more
formal and less flexible organization than to generate new growth opportunities. Our theory predicts that, as a
result of these inflexibilities, firms fail to fully replace their growth opportunities, so that their Tobin’s q falls with
age and they invest less as they grow older. With our theory, competition in the market for corporate control and
capital markets monitoring increase the rate of decrease in Tobin’s q, while product and labor market competition
slow it down. We find empirical support for these predictions. We also find evidence that the decline in q is
related to firm rigidities. (Link to Article)
Corporate Aging and Takeover Risk
Review of Finance 19, Issue 6, 2015, pages 2277-2315, with Claudio Loderer
Although growth opportunities fade and profitability declines as firms mature, older firms are no more likely to be acquired than young firms are. This article documents and explains that phenomenon. We argue that, because mature organizations are rationally less flexible, they are more costly to integrate and therefore comparatively unattractive acquisition candidates. The evidence supports this explanation of the negative age dependence of takeover hazard. The evidence also shows that negative exogenous shocks to merger benefits further reduce the takeover hazard of mature firms. We test many alternative explanations and find no evidence that they can explain the hazard decline. (Link to Article)
Old Captains at the Helm: Chairman Age and Firm Performance
Journal of Banking and Finance 37, Issue 5, 2013, pages 1612-1628, with Jonas Zeller
This paper examines whether the chairmen of the boards (COBs) impose their life cycles on the firms over which they preside. Using a large sample of unlisted firms, we find a robust negative relation between COB age and firm performance. COBs age much like ‘ordinary’ people. Their cognitive abilities deteriorate, and they experience significant shifts in motivation. Deteriorating cognitive abilities are the main driver of the performance effect that we observe. The results imply that succession planning problems in unlisted firms are real. Mandatory retirement age clauses cannot solve these problems. (Link to Article)
Shareholder Value: Principles, Declarations, and Actions
Financial Management 39, Issue 1, 2010, pages 5-32 (lead article)
with Claudio Loderer, Lukas Roth, and Petra Joerg
This paper is about shareholder value. We examine whether welfare considerations justify that target and whether competitive markets force firms to pursue it. We also argue that shareholder value is strictly an ill-defined goal. We report evidence from a large sample of listed firms across the world that many managers do not even mention shareholders in their mission statements. However, firms that do disclose a commitment to shareholders seem to perform better in terms of stock price and operating performance. (Link to Article)
Protecting Minority Shareholders: Listed versus Unlisted Firms
Financial Management 39, Issue 1, 2010, pages 33-57, with Claudio Loderer
Listed firms have an incentive to render themselves attractive to investors at large. This paper examines whether listed and unlisted firms differ in their care for minority shareholders and finds supporting evidence. We examine control structure, disclosure, board architecture and processes, and director compensation. The corporate governance package in listed firms differs from that in unlisted firms in terms of levels and mix of the different provisions. The data also suggest that listed firms perform better. (Link to Article)
Long-Term Performance of Initial Public Offerings: The Evidence for Switzerland
Schmalenbach Business Review 57, 2005, pages 253-275, with Wolfgang Drobetz and Matthias Kammermann
Listed firms have an incentive to render themselves attractive to investors at large. This paper examines whether listed and unlisted firms differ in their care for minority shareholders and finds supporting evidence. We examine control structure, disclosure, board architecture and processes, and director compensation. The corporate governance package in listed firms differs from that in unlisted firms in terms of levels and mix of the different provisions. The data also suggest that listed firms perform better. (Link to Article)