Essays on Empirical Corporate Finance

Abstract

In this dissertation, I examine important questions in empirical corporate finance. The research topics include "Words before exit": CEO linguistic patterns and forced turnover outcomes in the first chapter, "Interlocks in the shadow": how big firms lead information flow in the second chapter, and "What do all these vice presidents do?": the costs and benefits of senior executive employment in the third chapter. All chapters are co-authored with Professor Ali Akyol.

The first chapter examines CEO language style during the final earnings conference calls before forced turnovers to identify speech patterns that precede dismissal and assess whether linguistic attributes can serve as predictive signals of forced turnover. Our findings reveal that CEOs nearing dismissal display distinct verbal communication patterns compared to their peers who retain their positions. Specifically, increased use of first-person pronouns, analytical language, power-related words, and a present-focused orientation is associated with a higher likelihood of forced turnover. In contrast, greater use of third-person pronouns, authentic language, affective words, and tentative language correlates with a lower likelihood of dismissal. These results remain robust when comparing fired CEOs to similarly situated retained CEOs using propensity score matching, entropy balancing, and difference-in-difference analyses. Furthermore, our analysis shows that these linguistic shifts are specific to CEOs, as CFOs do not display similar patterns. Additionally, we find that new CEOs following forced turnovers exhibit distinct communication styles compared to their ousted predecessors.

The second chapter investigates how information flows through board interlocks in corporate networks, focusing on the asymmetric influence of larger firms on smaller connected firms. We use the COVID-19 pandemic as a natural experiment, as the rare event of earnings guidance withdrawals surged due to heightened uncertainty and economic volatility, creating a unique setting to study disclosure behavior. Analyzing a sample of U.S. public firms, we find that smaller firms are significantly more likely to withdraw earnings guidance after larger, connected peers do especially when connected through experienced audit committee members. These findings reveal that information transmission via interlocks is asymmetric, driven by firm size and director expertise, and that such effects become more visible during periods of crisis.

In the third chapter, we examine when senior executive employment creates or destroys shareholder value by studying vice president (VP) in U.S. public firms. Using comprehensive data from 2005-2024, we construct industry-adjusted measures of excess VP employment relative to economically comparable peers. We find that excess VP employment is associated with lower firm value on average, but this relation varies systematically with firm characteristic, market conditions and considering governance measures. In particular, excess VP employment is positively associated with firm value in large firms and during periods of heightened economic stress. These findings are robust to a range of identification and robustness tests, including matching-based approaches, instrumental variables, and alternative peer benchmarks.