Charles C.Y. Wang

Assistant Professor of Business Administration

Unit: Accounting and Management

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(617) 496-9633

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Charles C.Y. Wang is an assistant professor of business administration in the Accounting and Management Unit and teaches the Financial Reporting and Control course in the MBA required curriculum. Professor Wang is a former lecturer in law and economics at Harvard Law School and a past fellow in its Olin Program on Corporate Governance.

In his research, Professor Wang studies empirical asset pricing, equity valuation, corporate governance, and financial regulation. His current focus is on the connections between firm fundamentals and expected returns and on the relationship between governance characteristics and managerial incentives and firm performance. Professor Wang's research has been published in leading journals such as the Journal of Financial Economics and the Journal of Accounting and Economics. Media outlets including The Economist, the Financial Times, The New York Times Dealbook, U.S. News, and Smart Money have cited his research findings.

Professor Wang holds a Ph.D. and an MA in economics from Stanford University and an MS in statistics, also from Stanford. He graduated from Cornell University with a bachelor’s degree in industrial and labor relations. Before his graduate studies, he worked in economic and litigation consulting.

Featured Work

Publications

Journal Articles

  1. Search-Based Peer Firms: Aggregating Investor Perceptions Through Internet Co-Searches

    Applying a "co-search" algorithm to Internet traffic at the SEC's EDGAR website, we develop a novel method for identifying economically-related peer firms and for measuring their relative importance. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search-Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms' out-of-sample (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification and are more dynamic, pliable, and concentrated. We also show that co-search intensity captures the degree of similarity between firms. Our results highlight the potential of the collective wisdom of investors―extracted from co-search patterns―in addressing long-standing benchmarking problems in finance.

    Keywords: peer firm; EDGAR search traffic; revealed preference; co-search; industry classification; Perception; Search Technology; Investment;

    Citation:

    Lee, Charles M.C., Paul Ma, and Charles C.Y. Wang. "Search-Based Peer Firms: Aggregating Investor Perceptions Through Internet Co-Searches." Journal of Financial Economics (forthcoming). View Details
  2. The Cross Section of Expected Holding Returns and Their Dynamics: A Present Value Approach

    We provide a tractable model of firm-level expected holding period returns using two firm fundamentals—book-to-market ratio and ROE—and study the cross-sectional properties of the model-implied expected returns. We find that 1) firm-level expected returns and expected profitability are time-varying but highly persistent; 2) forecasts of holding period returns strongly predict the cross section of future returns up to three years ahead. We document a highly significant predictive pooled regression slope for future quarterly returns of 0.86, whereas the popular factor-based expected return models have either an insignificant or a significantly negative association with future returns. In supplemental analyses, we show that these forecasts are also informative of the time-series variation in aggregate conditions: 1) for a representative firm, the slope of the conditional expected return curve is more positive in good times, when expected short-run returns are relatively low; 2) the model-implied forecaster of aggregate returns exhibits modest predictive ability. Collectively, we provide a simple, theoretically motivated, and practically useful approach to estimating multi-period ahead-expected returns.

    Keywords: Expected Returns; discount rates; holding period returns; fundamental valuation; Present value; Valuation; Investment Return;

    Citation:

    Lyle, Matthew R., and Charles C.Y. Wang. "The Cross Section of Expected Holding Returns and Their Dynamics: A Present Value Approach." Journal of Financial Economics (forthcoming). View Details
  3. Golden Parachutes and the Wealth of Shareholders

    Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.

    Keywords: Golden parachute; Executive Compensation; corporate governance; Acquisitions; takeovers; acquisition takeover; acquisition likelihood; acquisition premiums; agency costs; managerial slack; Dodd-Frank; Executive Compensation; Acquisition; Corporate Governance; Business and Shareholder Relations;

    Citation:

    Bebchuk, Lucian A., Alma Cohen, and Charles C.Y. Wang. "Golden Parachutes and the Wealth of Shareholders." Journal of Corporate Finance 25 (April 2014): 140–154. View Details
  4. How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment

    The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings―separated by several weeks and going in opposite directions―that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by documenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.

    Keywords: Governing and Advisory Boards;

    Citation:

    Cohen, Alma, and Charles C.Y. Wang. "How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment." Journal of Financial Economics 110, no. 3 (December 2013): 627–641. View Details
  5. 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.

    Keywords: Networks; Governing and Advisory Boards; Forecasting and Prediction; Performance;

    Citation:

    Larcker, David F., Eric C. So, and Charles C.Y. Wang. "Boardroom Centrality and Firm Performance." Journal of Accounting & Economics 55, nos. 2-3 (April–May 2013): 225–250. View Details
  6. Learning and the Disappearing Association Between Governance and Returns

    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.

    Keywords: Corporate Governance; Investment Return; Operations; Performance; Value; Learning; Business Earnings; Behavioral Finance;

    Citation:

    Bebchuk, Lucian A., Alma Cohen, and Charles C.Y. Wang. "Learning and the Disappearing Association Between Governance and Returns." Journal of Financial Economics 108, no. 2 (May 2013): 323–348. View Details

Working Papers

  1. Measurement Errors of Expected Returns Proxies and the Implied Cost of Capital

    This paper presents a methodology to study implied cost of capital's (ICC) measurement errors, which are relatively unstudied empirically despite ICCs' popularity as proxies of expected returns. By applying it to the popular implementation of ICCs of Gebhardt, Lee, and Swaminathan (2001)(GLS), I show that the methodology is useful for explaining the variation in GLS measurement errors. I document the first direct empirical evidence that ICC measurement errors can be persistent, can be associated with firms' risk or growth characteristics, and thus confound regression inferences on expected returns. I also show that GLS measurement errors and the spurious correlations they produce are driven not only by analysts' systematic forecast errors but also by functional form assumptions. This finding suggests that correcting for the former alone is unlikely to fully resolve these measurement-error issues. To make robust inferences on expected returns, ICC regressions should be complemented by realized-returns regressions.

    Keywords: Measurement and Metrics; Cost of Capital; Investment Return;

    Citation:

    Wang, Charles C.Y. "Measurement Errors of Expected Returns Proxies and the Implied Cost of Capital." Harvard Business School Working Paper, No. 13-098, May 2013. View Details
  2. Can Implicit Regulation Change Financial Market Behavior? Evidence from Spitzer's Attack on Market Timers

    This paper explores a natural experiment setup from the 2003-2004 mutual fund scandals to evaluate the effectiveness of implicit regulation on financial markets behavior. On average, buy-and-hold investors lost 218 basis points annually from 1998 to 2002 to market timers. Buy-and-hold investors suffered further economic losses from higher cash holdings, portfolio turnover, fund fees, and substantially lower fund performance that resulted from market timing fund churn. Intensified threat of regulation from the 2003-2004 scandals resulted in the industry's self-regulation by, among other things, voluntary adoption of fair value pricing. I find strong evidence that their self-regulation reduced the market timing motive as well as fund churn in international mutual funds in the post-2004 period, and reduced dilution by 93%.

    Keywords: Financial Markets; Market Timing; United States;

    Citation:

    Wang, Charles C.Y. "Can Implicit Regulation Change Financial Market Behavior? Evidence from Spitzer's Attack on Market Timers." Working Paper, 2012. View Details
  3. Evaluating the Implied Cost of Capital Estimates

    Characterizing a firm's true (but unobservable) expected returns as the normative benchmark, we develop a two-dimensional framework for evaluating the relative performance of implied cost-of-capital (ICC) estimates. First, in time-series, variations in ICC estimates should reflect changes in true expected returns rather than changes in measurement errors. Second, cross-sectionally, ICC estimates should predict future realized returns. Using this framework, we compare seven alternative ICC measures and show that several perform quite well along both dimensions, and all do much better than Beta-based estimates. In addition, we provide evidence on the importance of appropriate matching between the earnings forecasting method (analyst vs. mechanical) and the valuation model. Overall, our evidence provides significant support for the broader adoption of ICCs as firm-level expected return proxies.

    Keywords: implied cost of capital; Expected Returns; Cost of Capital; Forecasting and Prediction; Investment Return;

    Citation:

    Lee, Charles M.C., Eric C. So, and Charles C.Y. Wang. "Evaluating the Implied Cost of Capital Estimates." Working Paper, September 2011. View Details

Cases and Teaching Materials

  1. Say on Pay: Qualcomm, Inc. Shareholders Vote 'Maybe' in 2012

    This case centers around Qualcomm shareholders' 2012 Say-on-Pay vote and the dispute between the Institutional Shareholder Services and management regarding the appropriateness of the CEO's compensation plan. Was ISS right that Qualcomm CEO's pay was inflated and justified by benchmarking to aspirational peers? Or was management correct that its CEO's pay is warranted by Qualcomm's recent firm performance?

    Citation:

    Srinivasan, Suraj, and Charles C.Y. Wang. "Say on Pay: Qualcomm, Inc. Shareholders Vote 'Maybe' in 2012." Harvard Business School Teaching Note 114-065, March 2014. View Details
  2. Say on Pay: Qualcomm, Inc. Shareholders Vote 'Maybe' in 2012

    This case centers around Qualcomm shareholders' 2012 Say-on-Pay vote and the dispute between the Institutional Shareholder Services and management regarding the appropriateness of the CEO's compensation plan. Was ISS right that Qualcomm CEO's pay was inflated and justified by benchmarking to aspirational peers? Or was management correct that its CEO's pay is warranted by Qualcomm's recent firm performance?

    Keywords: Executive Compensation; ISS; proxy advisor; investor communication; investor relations; peers; Say-on-Pay; benchmarking; peer group; corporate governance; compensation committees; board of directors; Governing and Advisory Boards; Executive Compensation; Corporate Governance; Business and Shareholder Relations; Telecommunications Industry;

    Citation:

    Srinivasan, Suraj, Charles C.Y. Wang, and Kelly Baker. "Say on Pay: Qualcomm, Inc. Shareholders Vote 'Maybe' in 2012." Harvard Business School Case 114-005, July 2013. (Revised January 2014.) View Details

    Research Summary

  1. Overview

    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. Equity Valuation

    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. Corporate Governance

    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. Overview

    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;

  1. Investor Responsibility Research Center Institute Research Award: Winner of the 2013 Academic Research Award from the IRRC Institute (Investor Responsibility Research Center Institute) for his paper with Lucian A. Bebchuk and Alma Cohen, "Learning and the Disappearing Association Between Governance and Returns" (Journal of Financial Economics, 2013).

  2. Bradley Research Fellowship: Awarded the 2011-2012 Bradley Graduate Fellowship from the Stanford Institute for Economic Policy Research (SIEPR).

  3. Centennial Teaching Assistant Award: Received a 2011 Centennial Teaching Assistant Award from Stanford University.

  4. Schultz Graduate Student Fellowship in Economic Policy: Received a 2010 George P. Schultz Graduate Student Fellowship in Economic Policy from the Stanford Institute for Economic Policy Research (SIEPR).

  5. Outstanding Teaching Assistant Award: Won the Outstanding Teaching Assistant Award from Stanford University, 2008–2010.

  6. Stanford Graduate Fellowship : Received a Stanford University Graduate Fellowship, 2006–2008.

Media and Other Notable Mentions

19 Feb 2013
Evolved Employer
15 Jan 2013
Wall Street Journal
14 Nov 2012
US News & World Report
24 Oct 2012
New York Times
12 Sep 2012
New York Times
02 May 2012
Financial Times
13 Apr 2012
Conference Board
02 Feb 2011
M & A Law Prof Blog
02 Feb 2011
Truth on the Market
17 Apr 2012
Harvard Law School Forum on Corporate Governance & Financial Regulation
12 Nov 2010
New York Times
26 Nov 2010
Project Syndicate
01 Oct 2010
Corporate Board Member

Blog Posts

07 Feb 2011
Harvard Law School Forum on Corporate Governance & Financial Regulation
08 Dec 2010
Harvard Law School Forum on Corporate Governance & Financial Regulation