The Changing Landscape of Corporate Governance Disclosure: Impact on Shareholder Voting (with David Becher and Jared Wilson)
Many mutual funds satisfy their fiduciary duty to vote on portfolio firms’ directors by following the recommendations of proxy advisory service companies such as ISS. However, companies complain that ISS recommendations are misguided. A rational response to such frictions would be for firms to decrease investors’ costs of evaluating directors’ expertise. Consistent with this conjecture, we find that firms increasingly disclose directors’ expertise in image-based formats. These disclosures lead to less reliance on ISS, particularly in cases where ISS’s recommendations tend to be less precise. An analysis of the channels underlying the higher voting support reveals both the upside and downside of these image-based disclosures: on average these disclosures are informative, but they also facilitate window dressing.
Firms' Transition to Green: Innovation versus Lobbying (with Sungjoung Kwon and Michela Verardo)
Competitive challenges and regulatory uncertainty associated with the green transition should incentivize firms to innovate and to sway regulatory policy. We develop a novel method to identify “green” and “brown” environmental lobbying. We find that firms’ lobbying is unrelated to innovation: green innovators are equally likely to lobby green or brown. Firms’ environmental lobbying is explained by current business operations and predicts real actions, for example future emissions. In contrast, green innovation is better characterized as a real option, to be exercised only if necessary. Despite the informativeness of lobbying, neither environmental ratings nor UNPRI signatories’ investments incorporate this signal.
Corporate Lobbying of Bureaucrats (with Ekaterina Volkova)
Although lobbying of Congress receives much attention, government agencies control many key decisions. We examine companies’ interactions with these agencies. First, companies extensively lobby agencies. Second, we exploit unique agency procedures to precisely measure benefits from this lobbying: companies earn higher returns around new rulemaking and face lighter enforcements following investigations. Third, since agencies don't depend on campaign contributions, we examine what incentivizes them to favor certain companies: regulatory capture and the revolving door play significant roles. Fourth, following a negative exogenous shock to agency power, the Supreme Court’s Chevron decision, firms engaged in agency lobbying experienced negative abnormal returns.