Daniel Ferreira's
research page
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SSRN page
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Selected Working Papers
1 - Boards of Banks
Daniel Ferreira, Tom Kirchmaier, and Daniel
Metzger
Abstract: We show that country characteristics explain most
of the cross-sectional variation in bank board independence. In contrast,
country characteristics have little explanatory power for the fraction of
outside bank directors with experience in the banking industry. Exploiting the
time-series dimension of the sample, we show that changes in bank
characteristics are not robustly associated with changes in board independence,
while changes in board experience are positively related to changes in bank
size and negatively related to changes in performance. The evidence suggests
that country-specific laws and regulations affect the composition of boards of
banks mainly through requirements for director independence.
Latest
version: January 8, 2012. Download it from SSRN.
2 - Competition and
Organizational Change
Daniel Ferreira and
Thomas Kittsteiner
Abstract: We develop a model in which
competitive pressure is a catalyst for organizational change. In our model,
commitment to a narrow business strategy is valuable because workers need to
coordinate their efforts to build a strategy-specific capability. We show that
a monopolist may not be able to commit to a focused business strategy. However,
introducing competition can make commitment credible, thus leading to
organizational change and greater operating efficiency. Our model sheds light on
a number of questions in the intersection between the strategic management
literature and the organizational economics literature, including the
importance of leadership styles, the existence of X-inefficiencies, and the
interactions between strategic positioning and organizational capabilities.
Second preliminary version:
August 26, 2011. Download it here.
3 - Who Gets to the Top?
Generalists versus Specialists in Organizations
Daniel Ferreira and
Raaj Sah
Abstract: We propose a model of
communication in organizations in which the quality of communication depends on
the match between senders and receivers of messages. The model allows for two
dimensions of knowledge: breadth and depth. Specialists have deep knowledge of
few areas while generalists have superficial knowledge of many areas.
Generalists are useful because they can communicate with many different
specialists. As a consequence, optimal organizational structures are such that
generalists are at the top and specialists are at the bottom. Our model has a
number of implications for organization design. In particular, we show that an
increase in the complexity of the environment together with improvements in
communication technology lead to a decrease in specialization at the top.
Latest version: January
2010. Download it from SSRN.
4 - Unbundling Ownership
and Control
Daniel Ferreira,
Emanuel Ornelas, and John Turner
Abstract: We study optimal corporate
control allocations under asymmetric information. We modify the canonical
partnership dissolution model to allow for the endogenous determination of ex
post ownership and control structures. Using a mechanism design approach, we
fully characterize the optimal restructuring mechanism. This mechanism requires
increasing the number of shares of the incumbent insider if he remains in
control, while giving him a golden parachute that may include both stock and
cash if he is deposed. The model exemplifies a novel explanation for the
prevalence and persistence of the separation of ownership from control:
efficiency in control contests is more easily achieved when ownership of cash
flow rights is not concentrated in the hands of insiders. The model generates
several novel empirical predictions.
Latest version: June 2010.
Download it from SSRN.
Also CEPR working paper no 6257, ECGI finance working paper no 172.
5 - Regulatory Pressure
and Bank Directors' Incentives to Attend Board Meetings
Renee Adams and
Daniel Ferreira
Abstract: The primary way in which directors
obtain necessary information is by attending board meetings. Bank directors, in
particular, are strongly urged to attend meetings by regulators. We investigate
whether such pressure is sufficient for bank directors to have good attendance
records. Using data on whether directors were named in proxy statements as
attending fewer meetings than they were supposed to, we find that a) bank
directors appear to have worse attendance records than their counterparts in
nonfinancial firms, b) their attendance behavior is
related to explicit and implicit incentives for attendance, and c) past attendance
records are not related to the likelihood a director departs the board. Our
results suggest that explicit and implicit incentives may provide important
complements to regulatory pressure in influencing director behavior.
Latest version: April 2008.
Download it from SSRN.
Published and
Forthcoming Papers
1 - Incentives to
Innovate and the Decision to Go Public or Private
Daniel Ferreira,
Gustavo Manso, and Andre C. Silva
Review of Financial Studies, conditionally accepted.
Abstract: We model the impact of public and
private ownership structures on firms' incentives to invest in innovative
projects. Innovation requires the exploration of a promising new idea that has
an unknown probability of success. We show that it is optimal to go public to
exploit the current technology and to go private to explore new ideas. This
result follows from the fact that private firms are less transparent to outside
investors than public firms. In private firms, insiders can time the market by
choosing an early exit strategy if they learn bad news. This option makes
insiders more tolerant of failures and thus more inclined to invest in
innovative projects. In contrast, prices of publicly-traded securities react
quickly to good news, providing insiders with incentives to choose conventional
and safer projects in order to cash in early.
Latest version: September
15, 2011. Download it from SSRN.
2 - Corporate Strategy and Investment Decisions
Daniel Ferreira
Chapter 2 in Capital Budgeting Valuation: Financial Analysis
for Today's Investment Projects, Baker,
H.K., and P. English (eds.), John Wiley & Sons, 2011, pp. 19-35.
Abstract: This chapter reviews the literature on business
strategy and its relations to corporate investment decisions. It provides an
overview of some important concepts and briefly discusses their practical
implications. A selective review of empirical evidence is used to illustrate a
few key ideas. The chapter offers an introductory discussion of topics such as
competitive advantage, added value, industry analysis, the industry life cycle,
firm scope, firm resources, and the trade-off between commitment and
adaptation. Specific applications to the problem of corporate investment
include corporate diversification, strategic investments, identifying and
valuing synergies, mergers and acquisitions, cash flow forecasting, and
interactions between investment and financing decisions.
First
version: May 2010. Preliminary version available here.
3 - Board Structure and Price Informativeness
Daniel Ferreira, Miguel A. Ferreira, and Clara Raposo.
Journal
of Financial Economics, March 2011, 99(3), 523-545.
Abstract: We develop and test
the hypothesis that stock price informativeness
affects the structure of corporate boards. We find a negative relation between
price informativeness and board independence. This
finding is robust to the inclusion of many firm-level controls - including firm
fixed effects - and to the choice of the measure of price informativeness.
Consistent with the hypothesis that price informativeness
and board monitoring are substitutes, this relationship is particularly strong
for firms more exposed to both external and internal governance mechanisms and
for firms in which firm-specific knowledge is relatively unimportant. Our
results suggest that firms with more informative stock prices have less
demanding board structures.
PDF file.
Winner of the Egon Zehnder International Prize for the best paper in the ECGI
working paper series on company boards and their role in corporate governance.
Picture of Clara receiving
the prize in Barcelona.
4 - Board Diversity
Daniel Ferreira
Chapter 12 in Corporate Governance: A Synthesis of
Theory, Research, and Practice,
Abstract: This chapter
discusses some of the research findings concerning board composition, with an
emphasis on the demographic characteristics of board members. The chapter
starts with a discussion of how economics and management scholars differ in
their theoretical analyses of board diversity. These theoretical perspectives
are then used to uncover the costs and benefits of board diversity. After a
brief overview of the empirical literature, the case of gender diversity in the
boardroom is discussed in greater detail. Implications for research, business
practice, and policy are briefly summarized.
First
version: September 2009. Preliminary version available here.
5 - Moderation in
Groups: Evidence from Betting on Ice Break-Ups in
Renee Adams and
Daniel Ferreira
Review
of Economic Studies, July 2010, 77(3), 882-913.
Abstract: We use a large sample of guessed
ice break-up dates for the
PDF file.
6 - What Determines the
Composition of Banks' Loan Portfolios? Evidence from
Transition Countries
Ralph De Haas, Daniel Ferreira, and Anita
Taci.
Journal
of Banking and Finance, February 2010, 34(2), 388-398.
Abstract:
This paper explores how bank characteristics and the institutional environment
influence the composition of banks'
loan portfolios. We use a new and unique data set based on the EBRD Banking
Environment and Performance Survey (BEPS), which was conducted for 220 banks in
20 transition countries. We show that bank ownership, bank size, and legal
creditor protection are important determinants of the composition of banks' loan portfolios. In particular, we
find that foreign banks play an active role in mortgage lending. Moreover,
banks that perceive pledge and mortgage laws to be of high quality choose to
focus more on mortgage lending.
7 - Women in the Boardroom and their Impact on Governance and
Performance
Renee Adams and
Daniel Ferreira
Journal
of Financial Economics, November 2009, 94(2), 291-309.
Abstract: We
show that female directors have a significant impact on board inputs and firm
outcomes. In a sample of US firms, we find that female directors have better
attendance records than male directors, male directors have fewer attendance
problems the more gender-diverse the board is, and women are more likely to
join monitoring committees. These results suggest that gender-diverse boards
allocate more effort to monitoring. Accordingly, we find that CEO turnover is
more sensitive to stock performance and directors receive more equity-based
compensation in firms with more gender-diverse boards. However, the average
effect of gender diversity on firm performance is negative. This negative
effect is driven by companies with fewer takeover defenses.
Our results suggest that mandating gender quotas for directors can reduce firm
value for well-governed firms.
PDF file.
Media coverage: The
Economist.
Financial Times (1
, 2
, 3),
The
Times, Observer (August
9 and August
16).
Invited comment in the Sunday Telegraph: If
women ruled boards.
Oral evidence given to the UK Treasury Committee in the House
of Commons (video).
Press coverage: FT,
The
Times, BBC News,
Yahoo
News.
8 - Strong Managers,
Weak Boards?
Renee Adams and Daniel Ferreira
CESifo Economic Studies,
September-November 2009, 55 (3-4), 482-514. (Symposium on
Executive Pay).
Abstract: Many governance
reform proposals are based on the view that boards have been too friendly to
executives, for example, by awarding them excessive pay. Although boards are
often on friendly terms with executives, it is less clear that they have
systematically failed to function in the interests of shareholders.
Understanding board monitoring requires a theory of boards that takes into
account how firms provide incentives for their CEOs through other means. We
develop a model in which a CEO's ownership stake and private benefits have
opposite effects on his willingness to share private information with an
independent board of directors. To encourage the CEO to communicate, the board
may optimally commit to a low monitoring intensity when either CEO ownership is
low or private benefits are high. Our model suggests that the existing
cross-section evidence on the correlation between board composition and CEO
ownership and tenure needs reevaluation. Using a new
proxy for board monitoring, we provide new evidence that this cross-sectional
correlation appears to be non-monotonic, with board independence first
decreasing and then increasing in CEO ownership and tenure. We discuss the
implications of our model for the design and evaluation of governance
structures.
Prepared
for CESifo Venice Summer Institute - Workshop on
Executive Pay (July 2008).
PDF file.
9 - Understanding the
Relationship between Founder-CEOs and Firm Performance
Renee Adams, Heitor
Almeida, and Daniel Ferreira
Journal
of Empirical Finance, January 2009, 16(1), 136-150.
Abstract: We use instrumental variables
methods to disentangle the effect of founder-CEOs on performance from the
effect of performance on founder-CEO status. Our instruments for founder-CEO
status are the proportion of the firm's founders that are dead and the number
of people who founded the company. We find strong evidence that founder-CEO
status is endogenous in performance regressions and that good performance makes
it less likely that the founder retains the CEO title. After factoring out the
effect of performance on founder-CEO status, we identify a positive causal
effect of founder-CEOs on firm performance that is quantitatively larger than
the effect estimated through standard OLS regressions. We also find that
founder-CEOs are more likely to relinquish the CEO post after periods of either
unusually low or unusually high operational performances. All in all, the
results in this paper are consistent with a largely positive view of founder
control in large
PDF file.
Media coverage: read the article on founder CEOs in Financial
Director magazine.
10 - Do Directors
Perform for Pay?
Renee Adams and
Daniel Ferreira
Journal
of Accounting and Economics, September 2008, 46(1), 154-171.
Abstract: Many corporations reward their
outside directors with a modest fee for each board meeting they attend. Using a
large panel data set on director attendance behavior
in publicly-listed firms for the period 1996-2003, we provide robust evidence
that directors are less likely to have attendance problems at board meetings
when board meeting fees are higher. This is surprising since meeting fees, on
average roughly $1,000, represent an arguably small fraction of the total
wealth of a representative director in our sample. Thus, corporate directors
appear to perform for even very small financial rewards.
11 - One Share - One
Vote: The Empirical Evidence
Renee Adams and
Daniel Ferreira
Review
of Finance, 2008, 12(1), 51-91.
Abstract: We survey the empirical
literature on disproportional ownership, i.e. the use of mechanisms that separate
voting rights from cash flow rights in corporations. Our focus is mostly on
explicit mechanisms that allow some shareholders to acquire control with less
than proportional economic interest in the firm (dual class equity structures,
stock pyramids, cross-ownership, etc.), but we also briefly discuss other
mechanisms, such as takeover defenses and fiduciary
voting. We provide a broad overview of different areas in this literature and
highlight problems of interpretation that may arise because of empirical
difficulties. We outline potentially promising areas for future research.
PDF file.
Policy impact: here.
12 - A Theory of
Friendly Boards
Renee Adams and
Daniel Ferreira
Journal of Finance, February 2007, 62(1), 217-250.
Abstract: We analyze the consequences of the
board's dual role as advisor as well as monitor of management. Given this dual
role, the CEO faces a trade-off in disclosing information to the board: If he
reveals his information, he receives better advice; however, an informed board
will also monitor him more intensively. Since an independent board is a tougher
monitor, the CEO may be reluctant to share information with it. Thus,
management-friendly boards can be optimal. Using the insights from the model,
we analyze the differences between sole and dual board systems. We highlight
several policy implications of our analysis.
PDF file
Emerald Citations of Excellence Award, 2011.
Winner of the 2006 Egon Zehnder International Prize
for the best paper in the ECGI working paper series on company boards and their
role in corporate governance.
As of April 2010, this paper was the second most cited paper out of all
articles published in the JF since 2007. Click here to see
publisher's announcement and here to see the top
ten list from the Web of Science.
13 - Corporate Strategy
and Information Disclosure
Daniel Ferreira and
Marcelo Rezende
RAND Journal of Economics, Spring 2007,
38(1), 164-184.
Abstract: We examine voluntary disclosures
of information about corporate strategies. We develop a model in which managers
choose whether to reveal their strategic plans only to some partners of the
firm or also to the outside world. We show that managers face a tradeoff when deciding whether to disclose their private
information to outsiders. On the one hand, by disclosing their intentions,
managers become reluctant to change their minds in the future. This may lead
them to make inefficient project implementation decisions. On the other hand,
information disclosure about corporate strategy provides strong incentives for
partners of the firm to undertake strategy-specific investments.
PDF file
14 - Options Can Induce
Risk Taking for Arbitrary Preferences
Luis Braido and
Daniel Ferreira
Economic Theory, April 2006, 27(3), 513-522.
Abstract: It is widely believed that call options
induce risk-taking behavior. However, Ross (2004)
challenges this intuition by demonstrating the impossibility of inducing
managers with arbitrary preferences to always act as if they were less risk
averse. If preferences and price distributions are unknown, risk-taking behavior cannot be always induced by an option contract.
Here, we prove a new result showing that, with no information about preferences
and some knowledge about prices, one can write a call option that makes all
managers prefer riskier projects to safer ones. This points out that in order
to design options that induce risk taking it is sufficient to have information
about price distributions.
15 - Powerful CEOs and
their Impact on Corporate Performance
Renee Adams, Heitor
Almeida, and Daniel Ferreira
Review of Financial Studies, Winter
2005, 18(4), 1403-1432.
Abstract: Executives can only impact firm
outcomes if they have influence over crucial decisions. On the basis of this
idea, we develop and test the hypothesis that firms whose CEOs have more
decision-making power should experience more variability in performance.
Focusing primarily on the power the CEO has over the board and other top
executives as a consequence of his formal position and titles, status as a
founder, and status as the board's sole insider, we find that stock returns are
more variable for firms run by powerful CEOs. Our findings suggest that the
interaction between executive characteristics and organizational variables has
important consequences for firm performance.
16 - Biased Managers,
Organizational Design, and Incentive Provision
Cristiano Costa, Daniel Ferreira, and Humberto Moreira
Economics Letters, March 2005, 86(3), 379-385.
Abstract: We model the tradeoff
between the balance and the strength of incentives implicit in the choice
between hierarchical and matrix organizational structures. We show that
managerial biases determine which structure is optimal: hierarchical forms are
preferred when biases are low, while matrix structures are preferred when
biases are high.
17 - Democracy and the
Variability of Economic Performance
Heitor Almeida and
Daniel Ferreira
Economics and Politics, November 2002, 14(3), 225-257.
Abstract: Sah (1991) conjectured that more
centralized societies should have more volatile economic performances than less
centralized ones. We show in this paper that this is true both for
cross-country and within-country variability in growth rates. It is also true
for some measures of policies. Finally, we show that both the best and worst
performers in terms of growth rates are more likely to be autocracies. We argue
that the evidence in the paper is consistent with the theoretical implications
in Sah and Stiglitz (1991) and Rodrik
(1999a).