This paper examines how female directors (FDs) affect firm value in the absence of mandatory gender quotas. Using a newly collected data set on director deaths around the globe, we find that stock prices decrease approximately 2% more when an FD passes away, compared with a male director. What explains this negative capital market reaction? We find evidence that finding successors for deceased FDs is challenging for firms: Succession delays are longer, and although firms try to replace FDs with women, two-thirds of their successors are male. Furthermore, their successors tend to be younger, less experienced, and more often externally hired. Stock prices decline less if more potential female successors exist in a country, the firm is larger, or FDs other than the deceased woman were on the board. Because observable characteristics such as age, tenure, education, and network centrality cannot explain the negative stock market reaction, unobserved differences across genders that lead to a lower fit of male successors to the existing board are the most likely explanation for the firm value loss after the death of an FD.
- Doctorate, Technische Universität München
- Diploma, Technische Universität München
Dr. Thomas SCHMID joined The University of Hong Kong as Assistant Professor in Finance in 2015. Before joining, he finished his dissertation in Finance and worked as Post-Doctoral Researcher at Technische Universität München. His main research area is empirical corporate finance. Currently he is working on projects which investigate the impact of labor rights, operating flexibility, and product market characteristics on firms’ financing decisions. Please refer to www.thomasschmid.org for his CV and more details.
Empirical Corporate Finance, with a focus on Corporate Governance, Labor Rights, and Product Markets
- “Female Directors and Firm Value: New Evidence from Directors’ Deaths,”
(with Daniel Urban). Management Science, 2023, 69(4), 2449-2473.
- “Product Price Risk and Liquidity Management: Evidence from the Electricity Industry,”
(with Chen Lin and Michael S. Weisbach). Management Science, 2021, 67(4), 2519-2540.
- “Is Skin in the Game a Game Changer? Evidence from Mandatory Changes of D&O Insurance Policies,”
(with Chen Lin, Micah S. Officer and Hong Zou). Journal of Accounting and Economics, 2019, 68(1), 101225.
- “Employee Representation and Financial Leverage,”
(with Chen Lin and Yuhai Xuan). Journal of Financial Economics, 2018, 127(2), 303-324.
- “Production Flexibility, Product Markets, and Capital Structure Decisions,”
(with Sebastian J. Reinartz). The Review of Financial Studies, 2016, 29(6), 1501-1548.
- “Control Considerations, Creditor Monitoring, and the Capital Structure of Family Firms,”
Journal of Banking and Finance, 2013, 37(2), 257-272.
Product price risk is a potentially important factor for firms’ liquidity management. A natural place to evaluate the impact of this risk on liquidity management is the electricity industry, because producing firms face substantial price volatility in wholesale markets. Empirically, higher volatility of electricity prices leads to an increase in cash holdings, and this effect is robust to instrumenting for price risk using weather volatility. Cash increases more with price risk in firms using inflexible production technologies and those that cannot easily hedge electricity prices, indicating that operating flexibility and hedging are substitutes for liquidity management.
This paper examines the incentive effects of a mandatory personal deductible in liability insurance contracts for directors and officers (D&Os). Exploiting a novel German law that mandates personal deductibles for executives, we document positive returns for affected firms around the first announcement of the plan to impose a personal deductible. We also find evidence of long-run effects: affected firms decrease risk taking in operational activities and financial reporting, and improve the quality of takeover decisions. Our study shows that the structure of D&O insurance contracts matters because mandating that D&Os have “skin in the game” appears to lead to real effects on firm value.