Associate Professor of Business Administration, Marvin Bower Fellow
Yuhai Xuan is an Associate Professor in the Finance Unit and Marvin Bower Fellow at Harvard Business School, and an Associate Editor of the Journal of Financial and Quantitative Analysis. He currently teaches Corporate Financial Management in the second year of the MBA program and Finance for Senior Executives in the Executive Education program. He has previously taught the required finance course in the first-year MBA program.
Professor Xuan's research focuses on empirical corporate finance, corporate governance, and behavioral finance. His work has been published in the Journal of Financial Economics, the Review of Financial Studies, and the Journal of Accounting Research, and has been covered in media outlets such as Bloomberg, The Economist, the Financial Times, and The Wall Street Journal. He has been awarded the 2011 Jensen Prize (First Place Winner) for the best corporate finance paper published in the Journal of Financial Economics.
Professor Xuan holds an A.M. and a Ph.D. in Business Economics from Harvard University. His employers prior to graduate school include HSBC and Microsoft Corporation.
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The Contract Year Phenomenon in the Corner Office: An Analysis of Firm Behavior During CEO Contract Renewals
This paper investigates how executive employment contracts influence corporate financial policies during the final year of the contract term, using a new, hand-collected data set of CEO employment agreements. On the one hand, the impending expiration of fixed-term employment contracts creates incentives for CEOs to engage in strategic window-dressing activities. We find that, compared to normal periods, CEOs manage earnings more aggressively when they are in the process of contract renegotiations. Correspondingly, during CEO contract renewal times, firms are more likely to report earnings that meet or narrowly beat analyst consensus forecasts. Moreover, CEOs also reduce the amount of negative firm news released during their contract negotiation years. On the other hand, we find that merger and acquisition deals announced during the contract renegotiation year yield higher announcement returns than deals announced during other periods, suggesting that the upcoming contract expiration and renewal can also have disciplinary effects on potential value-destroying behaviors of CEOs. In addition, we show that firms whose CEOs are scheduled or expected to leave their posts upon contract expiration do not experience such corporate policy changes in the contract ending year and that CEOs who engage in manipulation during contract renewal obtain better employment terms in their new contracts, in terms of contract length, severance payment, and salary and bonus. Overall, our results indicate that job uncertainty created by expiring employment contracts induces changes in managerial behaviors that have significant impacts on firm financial activities and outcomes.
Acquirer-Target Social Ties and Merger Outcomes
This paper investigates the effect of social ties between acquirers and targets on merger performance. We find that the extent of cross-firm social connection between directors and senior executives at the acquiring and the target firms has a significantly negative effect on the abnormal returns to the acquirer and to the combined entity upon merger announcement. Moreover, acquirer-target social ties significantly increase the likelihood that the target firm’s chief executive officer (CEO) and a larger fraction of the target firm’s pre-acquisition board of directors remain on the board of the combined firm after the merger. In addition, we find that acquirer CEOs are more likely to receive bonuses and are more richly compensated for completing mergers with targets that are highly connected to the acquiring firms, that acquisitions are more likely to take place between two firms that are well connected to each other through social ties, and that such acquisitions are more likely to subsequently be divested for performance-related reasons. Taken together, our results suggest that social ties between the acquirer and the target lead to poorer decision making and lower value creation for shareholders overall.