Topic: Executive Gatekeepers: Useful and Divertible Governance
Speaker:Wei Wang, Associate Professor of Finance, Queen's School of Business
Date: October 22nd, 2014 (Wed.)
Time: 1:30-3:00pm
Location: Building 4, Room 101
Language: English
Abstract:
We study the effectiveness of internal gatekeepers and then ask whether equity incentives divert the attention of corporate lawyers from gatekeeping. We find that executive gatekeepers reduce compliance failures (AAERS and insider trading profits) to negligible levels and decrease securities fraud and uncaught accounting fraud by 43% and 9% respectively. A general counsel fixed effect explains 7% variation in AAERs, and 6% in class action suits, over and above firm, year, and CEO fixed effects. Then, using the assumption that gatekeepers hired from law firms are initially less responsive to incentive pay as compared to those hired from other corporations for identification, we find that equity incentives given to gatekeepers unwind some governance improvements. A one standard deviation increase in gatekeeper’s compensation delta unwinds 82% of the prevention of securities fraud. Gatekeepers do not get diverted, however, from frauds associated with regulatory compliance. We conclude with an alternative interpretation of our design that these gatekeepers-in -residence may be hired as value-creators, but totems of governance.
About the speaker:
Wei Wang is an Associate Professor of Finance at Queen's School of Business. He received his Ph.D. in Finance from London Business School in 2005. Dr. Wang's research interests are in bankruptcy restructuring, distressed investing, corporate governance, activist investors, and capital structure. His research has been published in the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, and the Journal of Fixed Income, and featured in various media including the Wall Street Journal, Dow Jones Newswires, South China Morning Post, The Globe and Mail, National Post, and Business Week.
