The first essay shows that academic directors significantly increase firms' innovation. Following an academic director's death and relative to a non-academic director's death, the average firm reduces the number of citation-weighted patent applications by 30.7%. The number of patent applications also increases when an academic director becomes less busy after another company she holds directorship is acquired. Consistent with an advising channel, academic directors in STEM disciplines are particularly pro-innovation. In line with monitoring channels, firms with academic directors tend to dismiss CEOs who do not innovate and restrict real earnings management that waste financial resources. The relation between academic directors and innovation is not driven by PhD CEOs or non-academic PhD directors. Academic directors are associated with higher firm value at firms where innovation is more important but not at other firms. Overall, our results highlight the vital advising and monitoring roles academic directors play in corporate innovation.
The second essay finds that pre-existing professional ties with a firm's board significantly increase a CEO candidate's probability of being hired by the firm. Considering all CEOs hired this year as potential candidates, a board-connection corresponds to a 152% increase in the probability the candidate is selected as CEO. Consistent with the hypothesis that boards select connected candidates to increase shareholder value, we find significantly greater firm performance improvement after CEO turnovers for firms hiring connected CEOs than those hiring unconnected CEOs. Further, the performance increases are significant only among firms with severe information asymmetry, large CEO termination risk, and high coordination costs. We also find that connected CEOs make better acquisitions than unconnected CEOs. These results suggest connected hiring increases firm performance because it reduces information asymmetry, CEO termination risk, and CEO-board coordination costs. Inconsistent with boards rendering favors to friends, connected CEOs are not awarded a larger pay package when they assume office. Overall, our results suggest that it pays for a firm to hire a CEO with pre-existing ties to the board. / Doctor of Philosophy / We see professors seating on corporate boards all the time. Why do firms hire them? Do they make firms innovate more because they have strong research orientation? The first essay finds that these directors enhance corporate innovation. They improve innovation with their STEM expertise. Because STEM disciplines are particularly relevant to production technology, they are able to advise the CEO about innovation. We also find that these directors make firms innovate more by linking CEO termination decisions to innovation and by preventing companies from wasting resources that could otherwise be used for innovation. Lastly, these directors improve firm value at firms where innovation is important.
The board makes CEO recruiting decisions. We are interested in knowing (1) whether candidates are more likely to be hired if they already had a connection with the board; (2) whether these candidates outperform candidates without any connections. The second essay finds that having an acquaintance on the board helps a CEO candidate land the CEO position. We also find that these CEOs outperform CEOs without any connections. This is because there is little information gap between the connected CEO and the board. Also, the pre-existing connections allow the two parties to have better coordination.
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/110494 |
| Date | 08 June 2022 |
| Creators | Zhu, Ruiyao |
| Contributors | Finance, Xu, Jin, Singal, Vijay, MacKinlay, Andrew, Easterwood, John C. |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Language | English |
| Detected Language | English |
| Type | Dissertation |
| Format | ETD, application/pdf |
| Rights | In Copyright, http://rightsstatements.org/vocab/InC/1.0/ |
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