Workshop Series: Sudipto Dasgupta

7 August, 2012 - 10:30 to 12:00
Room 216 Sir Llew Edwards Building #14

Abstract:

How portable are top management skills? Should (and do) firms care about firmmanager fit when they hire new managers? How is fit related to managerial "style"? We hypothesize that if firms and managers are matched with each other on the basis of fit on multiple dimensions, then firms that employ the same manager at adjacent points of time should have similar characteristics. We find strong evidence that firms that employ the same manager sort on a number of characteristics. Our empirical design ensures that these results are not explained by managerial style, or by moves among firms of similar size, or within the same industry. We construct a measure for the quality of fit. We find that a worse fit leads to less positive stock price reaction to the announcement of managerial appointments, lower managerial pay, and shorter tenure for the manager, suggesting that management skills do not necessarily transfer from one firm environment to another. We also find evidence that when the firm and the manager do not fit well, managers influence several firm-specific variables, consistent with managerial style, control of inferior managers. The issuance of non-voting equity is optimal when the benefits, higher firm value because of higher investment outweighs the cost of managerial entrenchment and dividend dilution. We obtain conditions under which it is optimal for firms to issue non-voting stock. Our theory is consistent with the empirical findings of Faccio and Masulis (2005) who show that a fear of loss of control makes shareholders reluctant to issue voting equity to finance M&A activities. In addition, our model produces new empirical predictions regarding the relationship between the likelihood of dual-class recapitalization and incumbent management quality, management ownership and the effectiveness of other mechanisms to restrict private benefits.

Professor Sudipto Dasgupta, Chair Professor, Finance Department, Hong Kong University of Science and Technology

Academic and Professional Experience:

  1. Present: Chair Professor, Hong Kong University of Science and Technology, Dept. of Finance.
  2. 2004-June, 2008 Professor, Hong Kong University of Science and Technology, Dept. of Finance.
  3. 2000-June, 2004 Associate Professor, Hong Kong University of Science and Technology, Dept. of Finance.

Publications:

  • "CEO Ability, Pay, and Firm Performance," (with Yuk Ying Chang and Gilles Hilary), forthcoming, Management Science.
  • "Transparency, Stock Return Synchronicity, and the Informativeness of Stock Prices: Theory and Evidence" (with Jie Gan and Ning Gao), Journal of Financial and Quantitative Analysis.
  • "Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure," (with Thomas Noe and Zhen Wang), Journal of Financial and Quantitative Analysis October 2011 46 : pp1259-1294
  • "Monte Carlo Simulations and Capital Structure Research", (with Xin Chang), International Review of Finance, Vol. 11, No. 1, pp19-55, 2011.
  • "Cross-Border Acquisitions and Optimal Government Policy", (with Gautam Bose and Arghya Ghosh), Economic Record, Vol. 87, Issue 278, pp427- 437, 2011.

Recent Conference Presentations:

  • Shareholder Democracy and its Discontents: Outrage, Captured Boards, and the Veil of Ignorance (with Thomas Noe), presented at the American Finance Association Meetings, Denver, January 2011, and CAF conference at the Indian School of Business, August, 2010.
  • Discipline or Disruption? Stakeholder Relationships and the Effect of Takeover Threat (with Ling Cen and Rik Sen), presented at the Western Finance Association Meetings, Victoria, British Columbia, June 2010.
  • Debt Reclassifications under Revolving Facilities: Determinants and Real Impact (with Xin Chang and Yunling Chen), presented at the Financial Intermediation Research Society Meetings, June 2010, Florence, Italy.