Dr. John Doukas
Selected Publications

Protection of Trade Secrets and Value of Cash Holdings: Evidence from a Natural Experiment

We examine whether the protection of trade secrets by restricting the mobility of knowledgeable employees through the adoption of the legal Inevitable Disclosure Doctrine (IDD), an exogenous event, increases the marginal value of corporate cash holdings by reducing the uncertainty of future cash flows, and how that value differs across firms in IDD recognizing and non- recognizing states. We find that the marginal value of cash holdings increases (decreases) significantly in states in which the IDD has (not) been recognized through increases (decreases) in firm value and performance. A battery of robustness tests reveals that the effect of the IDD is more pronounced in firms with high R&D activities. Overall, the evidence shows that the IDD acts as a mechanism that inhibits the mobility of key employees and, thus, reduces the probability of the misappropriation of knowledge-based human capital assets. That is, the IDD creates an opportunity for firms to efficiently use cash to increase firm value - rather than using cash to protect trade secrets from rivals.

Keywords: Inevitable Disclosure Doctrine, Human Capital, Knowledge Protection, Value of Cash holdings, Board Size
JEL classification: G18, G32, G38, J24, K31.

" JOURNAL OF BANKING AND FINANCE" 2022 Forthcoming (Rajib Chowdrhury, co-author)

Stakeholder Orientation and the Value of Cash Holdings: Evidence from a Natural Experiment

We investigate whether and, if so, how stakeholder orientation affects the value of cash holdings by disciplining inefficient management and reducing agency costs. In so doing, we exploit the staggered enactment of constituency statutes across different states as an exogenous shock that increases the degree of stakeholder orientation substantially. Specifically, we gauge the monitoring effect of stakeholders by using the market value of cash framework of Faulkender and Wang (2006). We find that on average the marginal value of cash holdings increases significantly, both statistically and economically, after the passage of constituency statutes. The effect of constituency statutes on the value of cash holdings is stronger for firms with relatively weaker stakeholder power, high agency costs, and high information asymmetry. In subsequent tests, we show that investment efficiency in M&As and capital expenditures has improved significantly after the adoption of constituency statutes suggesting that heightened stakeholder monitoring over investments is a potential channel to enhance the value of cash holdings. Overall, our results suggest that stakeholder orientation increases the value of cash holdings by mitigating agency problems.

" JOURNAL OF CORPORATE FINANCE, 2021 Forthcoming (Rajib Chowdrhury and Jong Chool Park, co-authors)

Managerial Ability, Corporate Social Culture, and M&As

We investigate the predictive power of corporate social culture, as measured by corporate social responsibility (CSR) intensity, on shareholder wealth when mergers and acquisitions (M&As) are carried out by managers with different traits. We find acquiring firms with talented managers are more likely to engage in CSR activities to shape corporate social culture, thereby realizing larger short- and long-term gains than their counterparts. We also document that acquiring firms with higher levels of CSR commitment led by talented managers tend to acquire targets of similar corporate social culture and experience significantly positive post-merger returns, suggesting that corporate cultural similarity constitutes an important source of M&A synergies. These findings suggest that corporate culture built through stakeholder relations acts as a differentiation strategy that pays off when skilled managers engage in M&As, which typically prompt information asymmetries between managers and outsiders

" JOURNAL OF CORPORATE FINANCE, 2021 Forthcoming (Rongyao Zhang, co-author)

The Effect of Managers on M&As

In this paper, we document diverse levels of managerial ability and firm performance in the cross section of acquiring firms. Acquirers with strong managerial ability realize higher announcement-period abnormal returns and experience better post-merger firm performance than their low-ability counterparts. Our results are robust to endogeneity concerns and show that the observed variation in acquirer abnormal returns is attributed to the heterogeneity of managerial ability fixed effects across acquirers. Managerial ability adds value to acquirers, especially in stock-financed acquisitions, implying that the method of payment is not driving the negative stock-financed valuation effect documented in previous literature. Moreover, we find that target firms with strongly ingrained growth potential and low levels of financial constraint and bankruptcy risk are highly favored by skilled acquiring managers.

" JOURNAL OF CORPORATE FINANCE, 2021 Forthcoming (Feng Dong, co-author)

Managerial Ability Premium Factor and Fund Performance

We examine whether skilled fund managers use corporate managerial ability (MA) as a reference point in their investment decisions and find that skilled fund managers with significant loading on high-MA stocks outperform low-skill managers with low-loading on high-MA stocks by about 6% annually based on FFC 4-factor alpha over the 1990 to 2017 period. Consistent with our managerial ability premium (MAP) hypothesis we find negative MAP betas for high-selectivity funds (i.e., safer-funds with high exposure on High-MA stocks) and positive MAP betas for low-selectivity funds (i.e., funds with high exposure on Low-MA stocks).

" JOURNAL OF INTERNATIONAL MONEY AND FINANCE, 2021 Forthcoming (Feng Dong, co-author)

Corporate Managerial Ability, Earnings Smoothing, and Acquisitions

This paper examines whether high-ability managers’ earnings smoothing is motivated by the need to mitigate the adverse effects of heightened information asymmetry triggered by mergers and acquisitions (M&As) on managers’ reputation capital (job loss) and firm value. We document that acquirers led by high-ability managers engage in more pre-acquisition earnings smoothing and experience more significant announcement abnormal returns and operating performance in post-M&A periods than their low-ability counterparts. This result is consistent with the theory of managerial response to asymmetric information, amplified by M&As, where high-ability managers use earnings smoothing as a signaling device to ensure that the market quickly discovers their superior abilities, to increase acquirers’ future growth prospects and avoid the adverse effects of information asymmetry on managers’ job security and career prospects in a competitive executive labor market.

" JOURNAL OF CORPORATE FINANCE, 2020 Forthcoming (Rongyao Zhang, co-author)

The Effect of Corporate Investment Efficiency on Cross-Border M&As

This paper examines whether the heterogeneity of US acquirers’ corporate investment efficiency plays a key role in the observed performance variation of cross-border mergers and acquisitions (CBM&As). We find acquirers with attributes of high investment efficiency realize significantly higher shareholder gains than the deals carried out by low–investment efficiency acquirers. We also find that the inferior performance of CBM&As reported in earlier studies is mainly driven by the strong chief executive officer (CEO) dismissal risk incentives of low–investment efficiency acquirers. Moreover, the likelihood of CEO turnover decreases (increases) significantly if the CBM&As succeed (fail). High-investment-efficiency cross-listed US acquirers in the foreign target’s capital market realize significantly greater returns than their lowinvestment-efficiency counterparts. Finally, using a qualitative comparative analysis methodology, we further find that high–investment efficiency acquirers strongly prefer foreign targets with salient intangible assets and low acquisition value. US acquirers of low investment efficiency, though, focus only on lowcost international targets.

REVIEW OF CORPORATE FINANCE, 2022 Forthcoming 2022 Forthcoming (Feng Dong,co-author)

Are CEOs to Blame for Corporate Failure? Evidence from Chapter 11 Fillings

This study examines whether chief executive officers (CEOs) are to blame for corporate failures. Using alternative CEO managerial ability measures, we document that high-ability (low-ability) CEOs are less (more) likely to be associated with bankruptcy. We also find that reorganized firms run by high-ability incumbent CEOs experience improved financial performance after filing for Chapter 11. Firms that hire high-ability CEOs with bankruptcy experience also realize improved financial performance. Our evidence indicates that the likelihood of corporate bankruptcy is unrelated to the presence of high-ability managers and that bankruptcy does not adversely affect the post-bankruptcy careers of high-ability CEOs.

REVIEW OF CORPORATE FINANCE, 2022 Forthcoming 2022 Forthcoming (Rajib Chowdrhury, co-author)

Valuation Effects of Overconfident CEOs on Corporate Diversification and Refocusing Decisions

This study presents a theoretical model that links chief executive officer (CEO) overconfidence to the value loss of corporate diversification. Consistent with the model’s prediction, the findings show that diversified firms run by overconfident CEOs experience value loss compared to diversified firms run by their rational counterparts. Empirically, the value loss is economically significant and ranges between 12.5% and 14.1% [...]

Journal of Banking and Finance,forthcoming (Panayiotis C. Andreou, Demetris Koursaros and Christodoulos Louca co-authors)

Fund Management Skill and Noise Trading

In this research authors show that institutional investors’ skill matters the most during high sentiment periods when market signals are noisy. The results reveal that fund managers with the highest (lowest) skill add (lose) $7.71 ($5.64) million of value [...]

JOURNAL OF PORTFOLIO MANAGEMENT,forthcoming (Feng Dong, co-author)

Does Firing a CEO Pay Off?

Corporate investment decisions are of critical importance to the fortunes of firms and CEOs’ own careers. In this study, we examine whether involuntary CEO replacements pay off by improving firm prospects. We find CEO successors’ acquisition investments [...]

FINANCIAL MANAGEMENT,forthcoming (G. Alexandridis, and C. Mavis, co-authors)

The Columbia Law School Blog :

The Columbia Law School Blog

CEO Risk Preferences and Hedging Decisions: A Multiyear Analysis

Theory and previous empirical studies suggest that CEO risk preferences affect hedging. We challenge this idea in a 5-year time series setting by using inside debt (i.e., CEO pension and deferred compensation) and the CEO Vega and CEO Delta, as proxies of CEO risk preferences, and document that [...]

JOURNAL OF INTERNATIONAL MONEY AND FINANCE,forthcoming (Sonik Mandal, co-author)

The Payback of Mutual Fund Selectivity in European Markets

Is European fund management selectivity skill (1 − R2)profitable (alpha)? To examine this question, we use a sample of 2,947 actively managed domestic equity mutual funds from 11 European countries. We find that high fund selectivity generates significant investor gains. The results are robust to [...]

EUROPEAN FINANCIAL MANAGEMENT,forthcoming (Feng Dong, co-author)

Why Firms Favour the AIM when they Can List on Main Market?

It is often argued that the popularity of Alternative Investment Market (AIM) in terms of higher number of listings relative to the Main Market (MM) is mainly due to the strict listing requirements in the MM. During the 1995 to 2014 period [...]

JOURNAL OF INTERNATIONAL MONEY and FINANCE,forthcoming (Hafiz Hoque, co-author)

CEO Risk Preferences and Dividend Policy Decisions

This study examines whether risk aversion-inducing CEO compensation motivates managers to pay more dividends regardless of investor preferences. Using inside debt (i.e., pensions and deferred compensation) and the sensitivity of CEO equity [...]

CORPORATE FINANCE, forthcoming (Deren Caliskan, co-author)

Investor Sentiment, Beta, and the Cost of Equity Capital

The security market line (SML) accords with the capital asset pricing model (CAPM) by taking on an upward slope in pessimistic sentiment periods, but is downward sloping during optimistic periods. We hypothesize that this finding obtains [...]

MANAGEMENT SCIENCE, forthcoming (Constantinos Antoniou and Avanidhar Subrahmanyam, co-authors)

Do Individual Currency Traders Make Money?

Using a unique online currency transactions dataset, we examine the performance, trading activity, drawdown, and timing abilities of individual currency traders. Evidence from 428 accounts during the 2004-2009 period shows [...]

Online Appendix

JOURNAL OF INTERNATIONAL MONEY and FINANCE, forthcoming (Boris S. Abbey co-author)

Does the Bonding Effect Matter in a More Integrated Capital Market World?

This paper examines the bonding effect of cross-listing before and after the stock market liberalization reforms in China. Consistent with the bonding hypothesis, we find that Chinese firms with foreign listings attain higher valuations than firms without foreign listings. We also find [...]

JOURNAL OF INTERNATIONALMONEY and FINANCE, 2014, 47, 162-184 (Liu Wang, co-author)

Information Asymmetry, Price Discovery, and the Chinese B-Share Discount Puzzle

This paper addresses the information asymmetry between Chinese local A-share and foreign B-share markets and its impact on the B-share discount puzzle, contingent upon Chinese stock market liberalization reforms in 2001 and 2002. In contrast with the [...]

PACIFIC-BASIN FINANCE JOURNAL, 2013, 21, 1116-1135 (Liu Wang, co-author)

The Performance of NDF Carry Trades

This paper investigates the performance of carry trade strategies for currencies with non-deliverable forward (NDF) contracts. We find that carry trades for currencies with NDF [...]

JOURNAL OF INTERNATIONAL MONEY and FINANCE, 2013, 36, 172-190 (Hao Zhang, co-author)

Is Technical Analysis Profitable for Individual Currency Traders?

This study examines whether technical currency trading by individual currency traders is profitable. The results show technical analysis is negatively associated with performance. Further, the technical trading model developed here adequately describes the cross-section of returns for individual currency traders. [...]

JOURNAL OF PORTFOLIO MANAGEMENT, 2012, 39, 1,142-150 (Abbey Boris, co-author)

Cognitive Dissonance, Sentiment and Momentum

We consider whether sentiment affects the profitability of momentum strategies. We hypothesize that news that contradicts investors’ sentiment causes cognitive dissonance, slowing the diffusion of such news. Thus, losers (winners) become [...]

JOURNAL OF FINANCIAL QUANTITATIVE ANALYSIS (Constantinos Antoniou and Avanidhar Subrahmanyam, co-authors)

“Hot” Debt Markets and Capital Structure

This paper examines the motives of debt issuance during hot-debt market periods and its impact on capital structure over the period 1970–2006. We find that perceived capital market [...]

EUROPEAN FINANCIAL MANAGEMENT, 2011, 17, 46-99 (Michael Guo and Bilei Zhou, co-authors)

Arbitrage Risk and Stock Mispricing

This paper examines the bonding effect of cross-listing before and after the stock market liberalization reforms in China. Consistent with the bonding hypothesis, we find that Chinese firms with foreign listings attain higher valuations than firms without foreign listings. We also find [...]

JOURNAL OF FINANCIAL QUANTITATIVE ANALYSIS , 45, 04, 2010 (C. Kim and C. Pantzalis, co-authors)

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