11/19/2021
By Mary Lou Kelly

The Finance Department in the Manning School of Business cordially invites you to attend a doctoral dissertation defense by Soomi Jang on "Three Essays on Stakeholders."

Date: Thursday, Dec. 2, 2021
Time: 9 to 11:45 a.m.
Location: Virtual dissertation defense via Zoom.
Dissertation Title: "Three Essays on Stakeholders"

Dissertation Committee Members:

  • Tunde Kovacs, Associate Professor of Finance (Chair)
  • Brendan Epstein, Associate Professor of Economics
  • Steven Freund, Associate Professor of Finance
  • Saira Latif, Associate Professor of Finance

ABSTRACT

This dissertation aims to better understand broad themes of corporate finance related to various stakeholders. My dissertation comprises of three essays on employees, managers, and external stakeholders and their impacts on compensation schemes, analysts’ recommendations, and firms’ earnings management. The first two essays focus on internal stakeholders. The last essay examines external stakeholders, particularly shareholders and debtholders.

In the first essay, I focus on the impact of patent ownership change on employee stock option compensation. Using a Court of Appeals Federal Circuit (CAFC) ruling in 2008 as a quasi-natural experiment to examine the effects of a shift in patent ownership from inventor-employee to employer on employee stock option compensation and its consequences for a firm’s innovation activities. I find that treated firms, which are located in formerly pro-employee invention assignment states, increase employee stock option compensation and innovation activities following the CAFC ruling. Main results are not driven by the global financial crisis or firm financial constraints. My evidence highlights the role of employee stock option compensation in motivating employees’ innovation activities.

The second essay uses the managerial ability measure (Demerjian, 2012) to show that managerial ability has important financial information and real impacts on analysts’ recommendations. We find evidence that sell-side analysts recommend companies with higher managerial ability more favorably and the value-generating ability is not fully priced by the market. As a result, the investment profitability of analyst recommendations increases when the recommendation accounts for managerial ability. Overall, our results suggest that managerial ability is a distinct and important attribute of firms in explaining analysts’ stock recommendations and the value of these recommendations for investors.

The third essay examines the relation between shareholder-creditor conflict of interest and earnings management. Using mergers between institutional investors and creditors of industry firms as a positive shock to their interest alignment for identification purposes, we find that firms decrease earnings management following the mergers. Further analysis indicates that the negative effect of the shareholder-creditor mergers on earnings management is more pronounced for financially constrained and weakly governed firms. Our empirical evidence highlights the economic consequences of the agency problems between shareholders and creditors on firms’ opportunistic reporting behaviors.