Research Interests

Corporate Finance, Corporate Governance


Relative Performance Evaluation in CEO Compensation: A Talent-Retention Explanation, Journal of Financial and Quantitative Analysis 55 (2020), 2099-2123. (Lead Article, Winner of the W. F. Sharpe Award for the Best Paper in the 2020 Volume of the JFQA)

Authors: David De Angelis, Yaniv Grinstein

Abstract: Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First, we examine the RPE terms in compensation contracts and document features that are consistent with retention motives. Second, using a novel empirical specification for detecting RPE, we find RPE is less prevalent when CEO talent is less transferrable: among specialist CEOs, founder CEOs, and retirement-age CEOs, as well as in industries and states where the market for CEO talent is more restrictive.

Debt Contracting on Management, The Journal of Finance 75 (2020), 2095-2137.

Authors: Brian Akins, David De Angelis, Maclean Gaulin

Abstract: Change of management restrictions (CMRs) in loan contracts give lenders explicit ex-ante control rights over managerial retention and selection. This paper shows that lenders use CMRs to mitigate risks arising from CEO turnover, especially those related to the loss of human capital and replacement uncertainty, thereby providing evidence that human capital risk affects debt contracting. With a CMR in place, the likelihood of CEO turnover decreases by more than half, and future firm performance improves when retention frictions are important, suggesting that lenders can influence managerial turnover, even outside of default states, and help the borrower to retain talent.

The Effect of Short-Selling Threats on Incentive Contracts: Evidence from an Experiment, The Review of Financial Studies 30 (2017), 1627-1659.

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 Power, Journal 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&P 500 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

Identifying the Real Effects of the M&A Market on Target Firms

Authors: Elizabeth Berger, David De Angelis, Gustavo Grullon

Abstract: This paper provides causal evidence of the effects of the M&A market on target firms' corporate policies. Using antitrust regulatory thresholds to link the probability of a takeover to the size of the firm, we find evidence that firms intentionally reduce their size to elicit a takeover bid. They do so by limiting asset growth and increasing their payouts when they have excess cash. The treatment effect is stronger among firms with greater control over their market value and incentives to cash out via a merger. Our results reveal that antitrust exemptions can create perverse incentives that limit growth.

Errors in Shareholder Voting

Authors: Patrick Blonien, Alan Crane, Kevin Crotty, David De Angelis

Abstract: We develop a structural empirical framework to study voting outcomes and the role of proxy advisors for shareholder proposals.  Voting errors occur when bad proposals pass (false positives) and good proposals fail (false negatives). 6.5% of voting outcomes for shareholder proposals are mistakes, the majority being false positives.  Recommendations by proxy advisor ISS are incorrect roughly half the time. ISS makes more mistakes when they support proposals (70%), but investors rely less on those recommendations than when ISS is not in favor.  Errors in voting outcomes are more sensitive to proxy advisor informativeness and influence than to proposal quality.

Blocking Block-Formation: Evidence from Private Loan Contracts 

Authors: Brian Akins, David De Angelis, Rustam Zufarov

Abstract: Change in control clauses are pervasive in loan contracts, yet their terms are not boilerplate. Examining 14,940 contracts, we document significant heterogeneity in the use and size of ownership caps, which limit large equity block formation. Lenders set lower caps to mitigate risks arising from activism, takeovers, within-syndicate coordination costs, and power contests among shareholders. We confirm some of these effects using two quasi-natural experiments. Caps below 50% are associated with a drop in firm value but not in the cost of debt, consistent with exacerbated firm-manager agency costs. Finally, two findings shed light on ways creditors may influence corporate governance: the largest block size increases when these minority block restrictions expire, and the likelihood of withdrawing an announced buyback increases during the life of these loans.

The Salience of Creditors' Interests and CEO Compensation

Authors: Brian Akins, Jonathan Bitting, David De Angelis, Maclean Gaulin

Abstract: This paper shows that firms adjust CEO compensation policies when creditors' interests are more salient. This effect helps explain controversial compensation practices such as weak performance incentives and short pay duration. Our findings also show that to mitigate the agency cost of debt, compensation contracts can reflect not only the firm's capital structure but the debt contract itself. For example, firms tend to contract on accounting-based goals when creditors do as well. Our analysis relies on a regression discontinuity design around loan covenant violations. We also confirm our conclusions studying a broad sample of financially constrained firms seeking debt financing.

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.

Size Attracts Talent, but Talent Creates Size

Authors: David De Angelis, Thomas Hemmer, Amoray Riggs-Cragun

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