Research

My current research focuses on empirical analysis of corporate governance and industrial organization issues. 


Are Women Better Directors in Boards?    (with Olvar Bergland and Helge Berglann)

Alternative Title: Mandatory Inclusion of Female Directors on Corporate Boards  

Gender balance law was adopted in 2005 and went into effect in January 2006 with a two year deadline for compliance in Norway. It has compelled public limited firms to ensure gender balance at their boards, otherwise face liquidation. While many public companies have made changes in their boards, a considerable number of them, have tried to circumvent the regulation by changing their organization form. The ones that complied with this new regulation have changed their board compositions by including more women.  In this work, we investigate the implications of this board restructuring. We examine how including more female directors affects the company fundamentals. We look at two distinct dimensions. First, we see impact of their monitoring role at the boards, and whether their inclusion correspond with any corporate finance policy changes or firm fundamentals. Second, we comparatively scrutinize what has become different for companies that have managed to bypass the gender balance legislation. We utilize a unique database we constructed from the Norwegian Administrative database, which comprises financial information of public and private firms, as well as board and top-level executive variables from 2002 to 2012.  In terms of value, we find higher female share in the boards to be correlated with higher Tobin's Q values, even when we control for firm and year specific effects. Further empirical results show that women protect shareholder interests by increasing dividend payout to shareholders. We also discover that women directors are positively associated with the top executive compensation. But the impact  is diminishing over time. We attribute this positive impact to the fact that most women included in boards are coming as outsiders. And the inherent information asymmetry between CEO and the coming outsider directors may be working in favor of the CEO. 


Board Control: Inside vs Outside Directors    (with Olvar Bergland and Helge Berglann)

This study deals with the composition of corporate boards and examines  the impact of independent (outside) and inside directors. We analyze the effect of independent and representative board members on firm performance and shareholder protection. Overseeing the CEO to ensure value maximization is one of the key functions of boards. Hence, boards appear as a protective mechanism that protects shareholder rights. With this reasoning regulators promote independent directors at boardrooms. The literature corroborates the notion that independent directors are instrumental in mitigating agency problems. At the same time, increasing worker representation has been considered as a mechanism to contain, or balance the power of controlling shareholders for big companies. In Norway, employee representation in boards has been promoted by the legislation long before. Employee representatives have insider information about the companies and leaves little room for executives to mislead the board. For companies that adopt the gender balance law, and change their boards, we look at the impact of outsiders. We take the insiders into consideration by controlling for the board ownership, and use the incremental effect of female additions to the board as variable capturing the outsider impact. We examine the explanatory power of outsiders at board over the dividend policy of the company.  Preliminary results demonstrate that increasing outside and independent directors have a positive effect on dividend payments, thus working in favor of minorith shareholders. Conversely, we try to see how the employee representatives are related with the layoff decisions. For the companies that change their organizational form, we gauge the differential impact of employee representation when we control for other factors. The key posit is that employee representatives can curb employee layoffs. Briefly, the labor representation appears to diminish the layoff percentage, while outside directors  are instrumental in returning the value to shareholders.


Value of Director Networks for Firms    (with Olvar Bergland and Helge Berglann)

There exists a controversy over the impact of top level networks on the firm performance. Top level networks imply the embeddedness of directors and CEO. One line of literature asserts that firm performance decreases as the majority of directors holds multiple directorships. Another line asserts that director networks are beneficial to the companies. We study the impact of top-level networks on the firm by utilizing the Norwegian Registry Database including financial information of all public and private firms and individual-specific information on the directors, i.e. their earnings, wealth, educational background, experience. We constructed a panel set of public limited companies, and private companies matching the size of public counterparts from each specific industry according to 3-digit NACE industry classification, covering the period between 2002 and 2012. Our measure of network is the number of board seats occupied by directors and the CEO. A more embedded director/CEO occupies more board seats in other private and public companies. We use the introduction of Gender Balance Law in Norway as natural experiment, providing exogenous variation to the overall board level network connections. We find that CEO network contributes positively to company value, and negatively to the performance. Results indicate that a busier CEO is associated with lower sales performance. Since he/she is more preoccupied with daily errands on multiple ends, and this may explain the performance issue. On the other hand, higher Tobin's Q values reveal the positive contribution of the CEO's network to the firm value. Results also indicate that a more entrenched board has negative impact on the firm value and performance. In the second part of this study, we construct another set of companies who have lost a director. That is, we take the death of director as a shock to the leadership network that firm has. Most companies in this subset are medium size private companies, from a variety of sectors.


Concentration, Market Size, Market Power and Barriers: An Empirical Investigation  

The academic interest in market structure has long aimed at explaining the salient empirical regularities that appear over a wide range of industries. Distribution of firm sizes within most industries is highly skewed, implying that they are dominated by a handful of firms. Sutton (2007) mentions two robust mechanisms that must be taken into account while modeling the markets. First, the nature of competition in an industry is linked to the level of concentration. Second, industries characterized by high R\&D and Advertising intensity bring additional fixed and sunk costs to the firms within. These additional costs are endogenous and induce barriers to entry. Food industries are considered of such kind in general. Sutton (1998) provides a generalized model for markets, also called bounds approach, in which firm size arises as a collection of growth opportunities. In the limit, the firm size distribution is restricted to a lower bound Lorenz curve, and the number of growth opportunities captured during the industry evolution should explain most of the observed heterogeneity in the market shares. In the first part of this study, we investigate the food manufacturing industries using the Sutton framework. Observed concentration in sectors such as dairy and meat originate from the market exogenous sunk cost characteristics of these sectors. The second part extends this work from the manufacturing side to wholesale and retail industries. We estimate the HHI values, market shares, net trading cycles of the top firms, profitabilities, as well as other factors with 3-digit NACE classification. Then we look at how the bargaining power of big firms are related with the concentration. Initial examinations reveal that bargaining (or market) power, measured as net trading cycle, of big firms appears to be higher in sectors with entry barriers. At the same time, the barrier values measured in normalized sizes have explanatory power over the concentration. The bargaining power reflects big firms' ability to receive funds while making payments to their suppliers. If it increases along with the concentration, while controlling for the market size, it reveals the extent to which concentration is reflected as market power.


Proportional Random Growth with a Barrier: Case of Norway    (with Olvar Bergland) (Submitted)

This work investigates an empirical application of proportional random growth model with a reflecting barrier. We examine the size distribution of businesses in Norwegian manufacturing industries, and estimate tail index values and lower boundaries. Power law fits the upper tail distribution well for the total sample of manufacturing firms and for industry classifications. In the cross-section, the tail index is stable at $2$ with a barrier above normalized mean size. Industries differ with respect to their tail exponents and barrier values. Fatter tails do not necessarily correspond with low barriers. Industries such as meat, fish, and dairy are characterized by relatively high barrier values and jumps at the levels of tail indices. These results reflect the periods driven by industry-specific shuffles. To paraphrase, this paper shows that firm size is power-law distributed, and that the corporate growth may be largely random. In an economy with a fat-tailed distribution of firms, diversification effects due to country size are quite small. That is, idiosyncratic shocks to large firms do not die out in the aggregate. Since modern economies and specific industries are dominated by such big companies,  idiosyncratic shocks to these firms can lead to nontrivial aggregate outcomes.


Financing Entrepreneurial Ventures & Innovation

There are two interdependent research questions this study contemplates. First question deals with the driving forces behind the innovation. Second question is the impact of financial characteristics of private companies and public companies as well as the presence of entrepreneurial directors and managers on innovative activity end entrepreneurial spillovers. A body of literature underlines the role of debt financing for innovation, and the limits of equity markets, due to short-term pressures, imperfect monitoring, and such. Kerr and Nanda (2014) provides a detailed review of the burgeoning literature on the financing of innovation for large companies and new startups. On the popular front, there has been an ongoing discussion whether the big corporations are the actual drivers of innovation, or the small entrepreneurial ventures. On the other hand, regarding the entrepreneurship, the widely acknowledged posit is that entrepreneurial activity is associated with the innovation, and increased welfare. Djankov et al. (2002) reveal that the countries with more open access to political power, greater constraints on the executive, and greater political rights have less burdensome regulation of entry than do the countries with less representative, less limited, and less free governments. With these considerations entrepreneurial ventures have become a topic of increasing scrutiny in economic literature. Most recently, declining business start-up rates and the resulting diminished role of dynamic young businesses have brought concerns about the entrepreneurship and innovation. Entrepreneurial activity drives the search for higher returns to capital. As capital returns become more stagnant in large firms, principal financiers look for new opportunities. We try to figure out the relationship between capital outflows from existing firms and start-up of new firms. We quantify the effect of reallocation of investment from existing firms to start-ups by constructing the longitudinal panel from Norwegian administrative database. We also would like to discover how the financial characteristics of private companies and public companies differ in the presence of entrepreneurial directors and managers.