Hostname: page-component-848d4c4894-2pzkn Total loading time: 0 Render date: 2024-05-27T16:21:21.069Z Has data issue: false hasContentIssue false
  • English
  • Français

Lawyer CEOs

Published online by Cambridge University Press:  06 December 2023

M. Todd Henderson ,
Irena Hutton Open the ORCID record for Irena Hutton [Opens in a new window] ,
Danling Jiang Open the ORCID record for Danling Jiang [Opens in a new window]  and
Matthew Pierson
M. Todd Henderson
Affiliation:
University of Chicago Law School toddh@uchicago.edu
Irena Hutton*
Affiliation:
Florida State University College of Business
Danling Jiang
Affiliation:
Stony Brook University College of Business danling.jiang@stonybrook.edu
Matthew Pierson
Affiliation:
University of Pennsylvania The Wharton School Wharton Research Data Services mpiers@wharton.upenn.edu
*
ihutton@business.fsu.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We study when CEOs with legal expertise are valuable for firms. In general, lawyer CEOs are negatively associated with frequency and severity in employment civil rights, contract, labor, personal injury, and securities litigation. This effect is partly induced by the CEO’s management of litigation risk and reduction in other risky policies. Lawyer CEOs are further associated with an increase in gatekeepers providing additional legal oversight and a decrease in innovative activities with high litigation risk. Lawyer CEOs are more valuable during periods of enhanced compliance requirements and regulatory pressure and in industries with high litigation risk or better growth opportunities.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 37
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors thank an anonymous referee, Allen Berger, Bernard Black, Dan Bradley, Adam Chilton, Albert Choi, Lauren Cohen, Umit Gurun, William Hubbard, Steve Kaplan, Kobi Kastiel, Vikramaditya Khanna, Anup Malani, Paul Malatesta (the editor), Roy Shapira, Charles Whitehead, Luigi Zingales, participants of 2016 Florida Finance Conference, 2016 Southern Finance Association, 2017 Financial Management Association, 2017 American Law and Economics Association, 2017 Society for Empirical and Legal Studies Asia, and 2017 Society for Empirical and Legal Studies meetings, and seminar participants at Florida State University, Stony Brook University, University of Alabama, University of Chicago, and New York University, for helpful discussions and valuable comments. We are responsible for all remaining errors and omissions.

References

Arena, M., and Julio, B.. “The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy.” Journal Financial and Quantitative Analysis, 50 (2015), 251–275.CrossRefGoogle Scholar
Ben-David, I.; Graham, J.; and Harvey, C.. “Managerial Miscalibration.” Quarterly Journal of Economics, 128 (2013), 1547–1584.CrossRefGoogle Scholar
Benmelech, E., and Frydman, C.. “Military CEOs.” Journal of Financial Economics, 117 (2014), 43–59.CrossRefGoogle Scholar
Bertrand, M., and Schoar, A.. “Managing with Style: The Effect of Managers on Firm Policies.” Quarterly Journal of Economics, 118 (2003), 1169–1208.CrossRefGoogle Scholar
Bessen, J. E., and Meurer, M. J.. “The Private Costs of Patent Litigation.” Boston University School of Law Working Paper No. 07-08, available at SSRN: https://ssrn.com/abstract=983736 (2008).CrossRefGoogle Scholar
Bhagat, S.; Bizjak, J.; and Coles, J.. “The Shareholder Wealth Implications of Corporate Lawsuits.” Financial Management, 27 (1998), 5–27.CrossRefGoogle Scholar
Bird, R., and Orozco, D.. “Finding the Right Corporate Legal Strategy.” MIT Sloan Management Review, 56 (2014), 81–89.Google Scholar
Chen, F.; Hou, Y.; Richardson, G.; and Su, B.. “CEO’s Legal Expertise and Strategic Disclosures of Litigation Loss Contingencies.” Working Paper, Univeresity of Toronto (2021).Google Scholar
Custodio, C.; Ferreira, M. A.; and Matos, P.. “Generalists versus Specialists: Lifetime Work Experience and Chief Executive Officer Pay.” Journal of Financial Economics, 108 (2013), 471–492.CrossRefGoogle Scholar
Custodio, C.; and Metzger, D.. “Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies.” Journal of Financial Economics, 114 (2014), 125–154.CrossRefGoogle Scholar
Dicks, D., and Fulghieri, P.. “Uncertainty, Investor Sentiment, and Innovation.” Review of Financial Studies, 34 (2021), 1236–1279.CrossRefGoogle Scholar
Dong, M.; Hirshleife, D.; and Teoh, S. H.. “Misvaluation and Corporate Inventiveness.” Journal of Financial and Quantitative Analysis, 56 (2020), 2605–2633.CrossRefGoogle Scholar
Fich, E., and Shivdasani, A.. “Financial Fraud, Director Reputation, and Shareholder Wealth. Journal of Financial Economics, 86 (2007), 306–336.CrossRefGoogle Scholar
Gande, A., and Lewis, C.. “Shareholder-Initiated Class Action Lawsuits: Shareholder Wealth Effects and Industry Spillovers.” Journal of Financial & Quantitative Analysis, 44 (2009), 823–850.CrossRefGoogle Scholar
Garoupa, N., and Gomez-Pomar, F.. “Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees over Contingent Fees.” Journal of Law, Economics, and Organization, 24 (2008), 458–475.CrossRefGoogle Scholar
Graham, J. R.; Harvey, C. R.; and Puri, M.. “A Corporate Beauty Contest.” Management Science, 63 (2016), 3044–3056.CrossRefGoogle Scholar
Haslem, B. “Managerial Opportunism During Corporate Litigation.” Journal of Finance, 60 (2005), 2013–2042.CrossRefGoogle Scholar
Hirshleifer, D.; Hou, K.; Teoh, S. H.; and Zhang, Y. L.. “Do Investors Overvalue Firms with Bloated Balance Sheets.” Journal of Accounting and Economics, 38 (2004), 297–331.CrossRefGoogle Scholar
Hutton, I.; Jiang, D.; and Kumar, A.. “Corporate Policies of Republican Managers.” Journal of Financial and Quantitative Analysis, 49 (2014), 1279–1310.CrossRefGoogle Scholar
Hutton, I.; Jiang, D.; and Kumar, A.. “Political Values, Culture, and Corporate Litigation.” Management Science, 61 (2015), 2905–2925.CrossRefGoogle Scholar
Jagolinzer, A. D.; Larcker, D. F.; and Taylor, D. J.. “Corporate Governance and the Information Content of Insider Trades.” Journal of Accounting Research, 49 (2011), 1249–1274.CrossRefGoogle Scholar
Kaplan, S. N.; Klebanov, M. M.; and Sorensen, M.. “Which CEO Characteristics and Abilities Matter?” Journal of Finance, 67 (2012), 973–1007.CrossRefGoogle Scholar
Karpoff, J. M.; Lee, D. S.; and Martin, G. S.. “The Cost to Firms of Cooking the Books.” Journal of Financial and Quantitative Analysis, 43 (2008), 581–611.CrossRefGoogle Scholar
Karpoff, J. M., and Lott, J. R. Jr. “On the Determinants and Importance of Punitive Damage Awards.” Journal of Law and Economics, 42 (1999), 527–573.CrossRefGoogle Scholar
Karpoff, J. M.; Lott, J. R. Jr.; and Wehrly, E. W.. “The Reputational Penalties for Environmental Violations: Empirical Evidence.” Journal of Law and Economics, 48 (2005), 653–675.CrossRefGoogle Scholar
Karsten, C.; Malmendier, U.; and Sautner, Z.. “Lawyer Expertise and Contract Design – Evidence from M&A Negotiations.” Working Paper, available at SSRN: https://ssrn.com/abstract=2576866 (2021).CrossRefGoogle Scholar
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation, and Growth.” Quarterly Journal of Economics, 132 (2017), 665–712.CrossRefGoogle Scholar
Krishnan, J.; Wen, Y.; and Zhao, W.. “Legal Expertise on Corporate Audit Committees and Financial Reporting Quality.” Accounting Review, 86 (2011), 2099–2130.CrossRefGoogle Scholar
Kwak, B.; Ro, B.; and Suk, I.. “The Composition of Top Management with General Counsel and Voluntary Information Disclosure.” Journal of Accounting and Economics, 54 (2012), 19–41.CrossRefGoogle Scholar
Litov, L.; Sepe, S.; and Whitehead, C.. “Lawyers and Fools: Lawyer-Directors in Public Corporations.” Georgetown Law Journal, 102 (2014), 1–69.Google Scholar
Malmendier, U., and Tate, G.. “CEO Overconfidence and Corporate Investment.” Journal of Finance, 60 (2005), 2661–2700.CrossRefGoogle Scholar
Morse, A.; Wang, W.; and Wu, S.. “Executive Lawyers: Gatekeepers or Totems of Governance?” NBER Working Paper No 22597 www.nber.org/papers/w22597 (2016).CrossRefGoogle Scholar
Pham, M. H. “In Law We Trust: Lawyer CEOs And Stock Liquidity.” Journal of Financial Markets, 50 (2020), 1–25.CrossRefGoogle Scholar
Sturm, S., and Guinier, L.. “The Law School Matrix: Reforming Legal Education in a Culture of Competition and Conformity.” Vanderbilt Law Review, 60 (2007), 515.Google Scholar
Zhang, I. “Economic Consequences of the Sarbannes–Oxley Act of 2002.” Journal of Accounting and Economics, 44 (2007), 74–115.CrossRefGoogle Scholar
Supplementary material: File

Henderson et al. supplementary material

Henderson et al. supplementary material
Download Henderson et al. supplementary material(File)
File 110.5 KB