Featured Work

1. Learning and the Disappearing Association between Governance and Returns with Bebchuk and Cohen

   The correlation between governance indices and abnormal returns documented for 1990-1999 subsequently disappeared. The correlation and its disappearance are both due to market participants’ gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation’s disappearance was associated with increases in market participants’ attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.

2. Boardroom Centrality and Firm Performance

   Firms with central or well-connected boards of directors earn superior risk-adjusted stock returns. Initiating a long position in the most central firms and a short position in the least central firms earns an average risk-adjusted return of 4.68% per year. Firms with central boards also experience higher future growth in return-on-assets (ROA) with analysts failing to fully reflect this information in their earnings forecasts. Return prediction, growth in ROA, and analyst forecast errors are concentrated among firms with high growth opportunities or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms that stand to benefit most from the information communicated and resources exchanged through the network of board members. Overall, our results suggest that board of director networks provide economic benefits that are not immediately reflected in stock prices.

3. How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment

   This paper examines whether staggered boards reduce firm value or are merely associated with it due to the tendency of low-value firms to maintain staggered boards. To analyze this causal question, we take advantage of a natural experiment involving two recent court rulings, separated by several weeks, that affected in opposite directions the antitakeover force of staggered boards. We find evidence consistent with the hypothesis that the market viewed the antitakeover force of staggered boards as value reducing. Our findings have implications for the long-standing policy debate on the desirability of staggered boards.

Research Summary

1. Research Summary

   Overview

   by Charles C.Y. Wang

   In the area of equity valuation, Professor Wang explores how firm fundamentals and valuation models can be used to understand expected return variation, with a focus on valuation-implied cost of capital and its use as a proxy for expected returns. In his study of corporate governance, he empirically analyzes the impact of governance arrangements on shareholder value.

2. Research Summary

   Equity Valuation

   by Charles C.Y. Wang

   Professor Wang’s research utilizes valuation theory to explain how firm fundamentals are related to the expected rates of equity returns and their term structures. His research provides strong evidence that valuation-based proxies of expected returns outperform the standard empirical proxies motivated by finance theory. He has shown that such valuation-based proxies may not be perfect. To promote a better understanding of their imperfections, Professor Wang has developed a novel diagnostic procedure to estimate the associations between measurement errors of expected returns proxies and firm characteristics.

3. Research Summary

   Corporate Governance

   by Charles C.Y. Wang

   The characteristics and structure of boards of directors have important implications for firm performance. Professor Wang has found that firms with well-connected boards whose members have strong network connections provide economic benefits that are not immediately reflected in stock prices. Further, well-connected boards are most valuable to firms that stand to benefit most from their networks, such as young or growth organizations. Professor Wang’s research has also helped to settle an issue regarding staggered boards of directors. Staggered boards are known to be negatively correlated with firm valuation, but is this a causal effect? Using two Delaware Chancery and Supreme Court cases as a natural experiment, he found evidence consistent with the market’s view that staggered boards reduce firm value.
   
   In studying the asset-pricing implications of board entrenchment on firm value and stock returns, Professor Wang found that the positive association between good-governance firms and abnormal positive stock returns that was documented for the 1990-1999 decade has subsequently disappeared. His study finds evidence that during the 1990s, market participants and securities analysts did not sufficiently appreciate the difference between good-governance and poor-governance firms, and therefore were more positively surprised by the earnings announcements of good-governance firms. As they learned about and paid more attention to corporate governance in the early 2000s and impounded their value implications into prices, the association between governance and returns disappeared.
   
   Professor Wang’s findings in an examination of golden parachutes indicate that they lead to more acquisitions and acquisition bids, but that they are ultimately associated with lower acquisition premiums. Combining both effects, golden parachutes are associated with a higher expected acquisition premium. His research also finds that firms adopting golden parachutes tend to erode in value and stock returns, both around and after the time of adoption, relative to their industry peers, suggesting that the adverse effects on executive incentives and performance in the absence of acquisition offers may outweigh the shareholder benefit of increased likelihood of takeovers.

Teaching

1. Teaching Interest

   Overview

   by Charles C.Y. Wang

   Professor Wang currently teaches the first year required core class in Financial Reporting and Control. He has also taught empirical law and economics, financial economics, and applied econometrics. Financial Reporting and Control (FRC) is a course about how leaders can design and use performance measurement systems to build more effective organizations. Throughout their careers, business leaders are required to measure and evaluate their organization's economic performance, improve resource allocation and strategy implementation within their organizations, and build accountability for performance through effective external and internal governance. Top leadership in most organizations must also communicate performance information to external investors and other capital providers to ensure that their organizations are able to access capital on favorable terms. In FRC, we learn key concepts and frameworks that guide the effective design and use of performance measurement systems to accomplish these multiple complex goals.

   Keywords: Financial Accounting; managerial accounting; valuation; Investments; econometrics;

Awards & Honors

1. Charles C.Y. Wang: Awarded the 2011-2012 Bradley Graduate Fellowship from the Stanford Institute for Economic Policy Research (SIEPR).

2. Charles C.Y. Wang: Received a 2011 Centennial Teaching Assistant Award from Stanford University.

3. Charles C.Y. Wang: Received a 2010 George P. Schultz Graduate Student Fellowship in Economic Policy from the Stanford Institute for Economic Policy Research (SIEPR).

4. Charles C.Y. Wang: Won the Outstanding Teaching Assistant Award from Stanford University, 2008–2010.

5. Charles C.Y. Wang: Received a Stanford University Graduate Fellowship, 2006–2008.

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