• Research Interests
Corporate Finance, Corporate Governance

  • Publications
The Effect of Short-Selling Threats on Incentive Contracts: Evidence from an ExperimentForthcoming in the Review of Financial Studies.
Authors: David De Angelis, Gustavo Grullon, Sébastien Michenaud
Abstract: This paper examines the effects of a shock to the stock-price formation process on the design of executive incentive contracts. We find that an exogenous removal of short-selling constraints causes firms to convexify compensation payoffs by granting relatively more stock options to their managers. We also find that treated firms adopt new anti-takeover provisions. These results suggest that when firms face the threat of bear raids, they incentivize managers to take actions that mitigate the adverse effects of unrestrained short selling. Overall, this paper provides causal evidence that financial markets affect incentive contract design.

Input Hedging, Output Hedging, and Market PowerJournal of Economics and Management Strategy 26 (2017), 123-151.
Authors: David De Angelis, S. Abraham Ravid
Abstract: We argue that commodity input hedging is different from commodity output hedging. Output hedging can be detrimental to “sector play.” Furthermore, firms with market power that hedge outputs have incentives to over-produce and distort market prices. In rational markets such hedging will be expensive and we expect to see a negative relationship between hedging and market power in “output industries” but not in “input industries.” We test these predictions on a sample of S&P500 firms from 2001 to 2005. Our results support both hypotheses. Placebo tests show that the same empirical regularities do not apply to currency hedging. Finally, our empirical framework, which differentiates between hedging inputs and hedging outputs, can also help reconcile conflicting results in prior studies.

Performance Terms in CEO Compensation Contracts, Review of Finance 19 (2015), 619-651.
Authors: David De Angelis, Yaniv Grinstein
Abstract: In December 2006, the Securities and Exchange Commission issued new rules that require enhanced disclosure on how firms tie CEO compensation to performance. We use this new available data to study the terms of performance-based awards in CEO compensation contracts in S&P 500 firms. We observe large variations in the choice of performance measures. Our evidence is consistent with predictions from optimal contracting theories: firms rely on performance measures that are more informative of CEO actions.

  • Working Papers
On the Importance of Internal Control Systems in the Capital Allocation Decision: Evidence from SOX
Author: David De Angelis
Abstract: I examine the effect of information frictions across corporate hierarchies on internal capital allocation decisions using the Sarbanes-Oxley Act (SOX) as a quasi-natural experiment. I find that after SOX, the capital allocation decision in conglomerates is more sensitive to the performance reported by their business segments. The effects are most pronounced in conglomerates that are prone to information problems and agency conflicts within the organization. In addition, conglomerates’ productivity and market value relative to stand-alone firms increase after SOX. These results support the argument that inefficiencies in the capital allocation process are partly due to information frictions across corporate hierarchies.

Relative Performance Evaluation in CEO Compensation: A Non-Agency Explanation
Authors: David De Angelis, Yaniv Grinstein
Abstract: We examine the contractual terms that govern relative performance evaluation (RPE) in CEO compensation and compare them to their counterparts in the theoretical literature. We find limited support for theories predicting that RPE is used to filter out noise from performance measures and for tournament theories predicting that RPE is used to reward CEOs for outperforming their peers. We find stronger support for theories predicting that RPE is used to pay CEOs for their talent relative to peers. Based on the observed RPE terms, we introduce a new empirical test to detect RPE and find support to the pay-for-talent explanation.

Debt Contracting on Management
Authors: Brian Akins, David De Angelis, Maclean Gaulin
Abstract: Contract theory has stressed the importance of human capital risk associated with management in debt contract design. Using a unique database of private loan contract terms, we find that when this risk is large, lenders include change of management restrictions (CMRs) in loan contracts. These restrictions give lenders explicit control over managerial retention and/or selection decisions. Our analysis also shows that lenders’ interplay with equity holders and the way equity holders (can) contract with management affects lenders’ decision to include a CMR. These results provide two implications that inform the theory: (i) human capital risk associated with management affects debt contracting, but the contracting space is broader than anticipated in existing models, and (ii) shareholders’ role in mitigating or exacerbating human capital risk faced by lenders is important in debt contract design. Finally, we find that the likelihood of CEO turnover more than halved during CMR terms suggesting that these clauses are respected by borrowers and that lenders can influence managerial turnover, even outside of default states.

  • Previous Research Papers
Relative Performance Evaluation in CEO Compensation: Evidence from the 2006 Disclosure Rules, 2011
Authors: David De Angelis, Yaniv Grinstein

A Multirisk Approach to Measuring Corporate Hedging and its Determinants
, 2008
Authors: David De Angelis, René Garcia