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The purpose of this study is to contribute to the debate in the literature about generalist CEOs by exploring the effect of board governance on CEO general managerial ability, focusing on one of the most crucial aspects of the board of directors, board size. Prior research shows that smaller boards constitute a more effective governance mechanism and therefore are expected to reduce agency costs.

The authors estimate the effect of board size on CEO general managerial ability, using a fixed-effects regression analysis, propensity score matching, as well as an instrumental-variable analysis. These techniques mitigate endogeneity greatly and make the results much more likely to show causality.

The results show that firms with smaller board size are more likely to hire generalist CEOs. Specifically, a decline in board size by one standard deviation raises CEO general managerial ability by 15.62%. A lack of diverse experiences in a small board with fewer directors makes it more necessary to hire a CEO with a broad range of professional experiences. Furthermore, the agency costs associated with generalist CEOs are greatly diminished in firms with a smaller board. Hence, firms with a smaller board are more inclined to hire generalist CEOs.

Although prior research has explored the effects of board size on various corporate outcomes, strategies and policies, this study is the first to investigate the effect of board size on CEO general managerial ability. This study contributes to the literature both in corporate governance and on CEO general managerial ability.

Taking advantage of a novel measure of innovative culture generated by advanced machine learning, this study aims to investigate how a culture of innovation is influenced by a crucial aspect of the board of directors, i.e. board size. The data on corporate culture of innovation are based on a textual analysis of earnings conference calls and represent a unique approach to capturing corporate culture.

In addition to the standard regression analysis, the authors also perform several sophisticated robustness checks, such as propensity score matching, entropy balancing, an instrumental-variable analysis, Oster’s (2019) method for testing coefficient stability, GMM dynamic panel data analysis and Lewbel’s (2012) heteroscedastic identification.

Corroborating the prediction of the resource dependence theory, the study results show that larger boards promote an innovative culture more effectively. A larger board with more directors provides the firm with additional resources, expertise and abilities, enabling it to develop an innovative culture more successfully.

This study is the first to examine the effect of board size on innovation using data on corporate culture generated by sophisticated computer algorithms. The authors advance the literature both in corporate governance and corporate innovation.

This study aims to investigate the role of the market for corporate control as an external governance mechanism and its effect on executive risk-taking incentives. Managers tend to be risk-averse as they are more exposed to idiosyncratic risk, resulting in sub-optimal risk-taking that does not maximize shareholders’ wealth. The takeover market alleviates this problem, inducing managers to take more risk. Therefore, risk-taking incentives inside the firm are less powerful when the outside takeover market is more active.

Exploiting a novel measure of takeover vulnerability recently constructed by Cain et al. (2017), the authors explore how takeover vulnerability influences executive risk-taking incentives. Using a large sample of US firms, the authors use fixed-effects regressions, propensity score matching and instrumental variable analysis.

Consistent with this study’s hypothesis, a more active takeover market results in less powerful risk-taking incentives. Specifically, a rise in takeover vulnerability by one standard deviation diminishes executive risk-taking incentives by 22.39%, which is an economically meaningful magnitude.

To the best of the authors’ knowledge, this study is the first to explore the effect of the takeover market on managerial risk-taking incentives, using a novel measure of takeover susceptibility. The authors’ measure of takeover vulnerability is considerably less susceptible to endogeneity, enabling the authors to draw causal inferences with more confidence.

Capitalizing on a unique measure of takeover susceptibility principally based on the staggered implementation of state laws, this study aims to explore the takeover market’s effect on managerial ownership. The market for corporate control, often known as the takeover market, is an important external governance mechanism, whereas managerial ownership is a vital internal governance instrument. Managerial ownership brings into convergence the interests of shareholders and managers. The originality of this study arises from the usage of state-level anti-takeover legislations as a measure which is beyond the control of firms and plausibly exogenous to firm-specific characteristics.

In addition to the standard regression analysis, this study also executes a variety of robustness checks to minimize endogeneity, i.e. propensity score matching, entropy balancing, instrumental–variable analysis, Lewbel’s (2012) heteroscedastic identification and Oster’s (2019) testing for coefficient stability.

Based on a large sample of US firms, the results show that more hostile takeover threats bring about significantly lower managerial ownership. The results reinforce the prediction of the substitution hypothesis. The disciplinary function of the takeover market reduces agency conflict to the point where managerial ownership is less necessary as a governance mechanism. Specifically, a rise in takeover susceptibility by one standard deviation diminishes managerial ownership by 7.22%.

`To the best of the authors’ knowledge, this study is the first to shed light on the impact of the takeover market on managerial ownership using a novel measure mainly based on the staggered adoption of state laws, which are plausibly exogenous to individual firms’ characteristics. Consequently, unlike prior research, this study is more likely to indicate a causal effect, rather than merely a correlation.

Exploiting two novel measures of takeover vulnerability and asset redeployability, this paper aims to investigate the effect of the takeover market on redeployable assets. Redeployable assets are those with alternative uses. Asset redeployability is a crucial concept in the literature on investment irreversibility.

In addition to the standard regression analysis, the authors execute several robustness checks: propensity score matching, entropy balancing, instrumental-variable analysis and generalized method of moment dynamic panel data analysis.

The authors’ results reveal that more takeover threats reduce asset redeployability significantly, corroborating the managerial myopia hypothesis. Hostile takeover threats reduce managers’ job security and thus induce them to myopically focus on the current utilization of assets in the short run, rather than how they may be deployed in the long run, resulting in less asset redeployability.

To the best of the authors’ knowledge, this study is the first to investigate the effect of takeover threats on asset redeployability. Because the authors’ measure of takeover vulnerability is principally based on the staggered passage of state legislations, which are plausibly exogenous, the authors’ results likely reflect causality, rather than merely an association.

Exploiting a novel measure of hostile takeover exposure primarily based on the staggered adoption of state legislations, we explore a crucial, albeit largely overlooked, aspect of corporate social responsibility (CSR). In particular, we investigate CSR inequality, which is the inequality across different CSR categories. Higher inequality suggests a less balanced, more lopsided, CSR policy.

In addition to the standard regression analysis, we perform several robustness checks including propensity score matching, entropy balancing and an instrumental-variable analysis.

Our results show that more takeover exposure exacerbates CSR inequality. Specifically, a rise in takeover vulnerability by one standard deviation results in an increase in CSR inequality by 4.53–5.40%. The findings support the managerial myopia hypothesis, where myopic managers promote some CSR activities that are useful to them in the short run more than others, leading to higher CSR inequality.

Our study is the first to exploit a unique measure of takeover vulnerability to investigate the impact of takeover threats on CSR inequality, which is an important aspect of CSR that is largely overlooked in the literature. We aptly fill this void in the literature.

Exploiting an innovative measure of corporate culture based on machine learning and earnings conference calls, this study aims to investigate how corporate culture is influenced by hostile takeover threats. To sidestep endogeneity, this study uses a unique measure of takeover vulnerability principally based on the staggered implementation of state legislations, which are plausibly exogenous.

In addition to the standard regression analysis, this study also executes a variety of other empirical tests such as propensity score matching, entropy balancing and an instrumental variable analysis, to demonstrate that the results are robust. The final sample includes 27,663 firm-year observations from 4,092 distinct companies from 2001 to 2014.

This study documents that more takeover exposure weakens corporate culture considerably, consistent with the managerial myopia hypothesis. Threatened by the takeover risk, managers tend to behave myopically and are less likely to make long-term investments that promote strong corporate culture in the long run. Additional analysis focusing on a culture of innovation, which is especially vulnerable to managerial myopia, produces similar evidence.

To the best of the authors’ knowledge, this study is the first to explore the effect of takeover susceptibility on corporate culture using a distinctive metric of corporate culture based on textual analysis.

Exploiting a novel measure of innovation, the authors investigate whether independent directors improve innovation efficiency. This novel measure of innovation captures the extent to which the firm generates revenue from its research & development and is, therefore, more economically meaningful. The authors also use a text-based measure of innovation.

The authors rely on a quasi-natural experiment based on the passage of the Sarbanes-Oxley Act of 2002 that compelled certain firms to raise board independence. The difference-in-difference analysis is far less vulnerable to endogeneity and is more likely to show a causal influence, rather than a mere association.

The results show that more independent directors improve innovation efficiency significantly. Specifically, firms forced to raise board independence experienced a much higher increase in innovation than those not required to change their board composition. The authors also explore another novel measure of innovation, a text-based metric of innovation.

The research is original in several ways. First, the authors take advantage of an exogenous regulatory shock as a quasi-natural experiment. This approach is far less susceptible to endogeneity. Second, the authors use a novel measure of innovation efficiency, i.e. research quotient, which is more economically meaningful. Finally, the authors use a unique measure of innovation derived from powerful textual analysis.

Theory suggests that the market for corporate control, which constitutes an important external governance mechanism, may substitute for internal governance. Consistent with this notion, using a novel measure of takeover vulnerability primarily based on state legislation, this paper aims to investigate the effect of the takeover market on board characteristics with special emphasis on board gender diversity.

This paper exploits a novel measure of takeover vulnerability based on state legislation. This novel measure is likely exogenous as the legislation was imposed from outside the firm. By using an exogenous measure, the analysis is less vulnerable to endogeneity and is thus more likely to show a causal effect.

The results show that a more active takeover market leads to lower board gender diversity. Specifically, a rise in takeover vulnerability by one standard deviation results in a decline in board gender diversity by 10.01%. Moreover, stronger takeover market susceptibility also brings about larger board size and less board independence, corroborating the substitution effect. Additional analysis confirms the results, including propensity score matching, generalized method of moments dynamic panel data analysis and instrumental variable analysis.

The study is the first to explore the effect of the takeover market on board gender diversity. Unlike most of the previous research in this area, which suffers from endogeneity, this paper uses a novel measure of takeover vulnerability that is probably exogenous. The results are thus much more likely to demonstrate causality.

This study aims to examine whether co-opted directors influence analysts’ recommendations. As information intermediaries, financial analysts should incorporate the quality of corporate governance into their valuation because well-governed firms are associated with lower agency costs and better performance. Co-opted directors are those appointed after the incumbent chief executive officer assumes office. The authors investigate whether board co-option has an effect on analyst recommendations.

The present study uses univariate analysis, multi-variate regression analysis and conduct a natural experiment using the Sarbanes-Oxley as an exogenous shock.

The results show that firms with fewer co-opted directors tend to receive more favorable recommendations, suggesting that analysts favor firms with strong corporate governance. The results hold even after controlling for various firm characteristics, including the traditional measures of board quality, i.e. board size and independent directors.

The paper is the first of its kind and offers evidence on the effect of co-opted directors on analyst recommendations. The results contribute to the literature both in corporate governance and in financial intermediaries, where analysts play a crucial role in providing information to the various participants in financial markets.