Essays in empirical and behavioral corporate finance
My dissertation is in the area of behavioral and empirical corporate finance. I study the impact of behavioral biases and suboptimal incentives faced by top executives and directors on the quality of several types of corporate decisions.
The first paper, "Dynamic contracting in the asset management industry", documents potential inefficiencies in contracting between mutual funds and the outside parties, known as advisory firms, that manage the funds' money. The second paper, "Social networks, corporate governance and contracting in the mutual fund industry", tests whether favoritism and social network effects among mutual fund directors may influence contract negotiations between funds and advisory firms, to the detriment of mutual fund investors. I find that connections and influence between fund directors and advisory firms matter for the selection of advisors by funds, and of new fund directors by advisory firms, as well as for various transfers between funds and advisors. The third paper, "Escalation of commitment and disinvestment decisions" (co-authored with Ulrike Malmendier), focuses on the role of escalation of commitment (the sunk cost fallacy) in corporate disinvestment decisions made by CEOs and boards of directors. Our results indicate that the escalation bias has a detrimental impact on the timing of decisions to divest of previously acquired underperforming divisions.