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Washington University in St Louis Olin Business School

Olin Business SchoolOlin Business School
Home > Programs > PhD > On the Market

Johan Maharjan, PhD, Finance

Research Interests: My research covers topics in corporate finance. My research interest fall broadly in the following areas: corporate governance, mergers and acquisitions, investor-management disagreement, stock liquidity, and firm innovation.

Job Market Paper Title: "CEO-Chair Duality Split: An alternative to firing"

Abstract: An interesting puzzle in corporate finance is the prevalence of weaker performance-forced CEO turnover sensitivity. I propose that firms can simply split the CEO-Chair role or demote the incumbent CEO to the executive Chairman position when faced with poor firm performance. These splits exclude obvious passing-of-baton cases, and where the tenure as executive Chairman is less than two years ex post of the split. The unconditional probability of such splits in my sample is 1.35% which when compared to the unconditional probability of forced turnover (2.06%) is substantial. My findings are robust to vast arrays of alternative firm performance measures, as well as to the inclusion of firm and time fixed effects. Using the annual reconstitution of Russell 1000 and Russell 2000 indices as an exogenous shock to institutional holdings, I show that such splits are more pronounced with entrenched CEOs. Such splits are also more likely with CEOs with firm specific managerial skills, CEOs with good firm performance throughout their tenure as CEO, and in less diversified firms. Market reactions to such splits are positive in general and such CEOs do not seem to incur major reputational damage, as in the case of ousted CEOs. Finally, I re-examine the performance-forced CEO turnover sensitivity in a competing risk framework. Overall, the evidence shed light on the age-old puzzle.

Other Completed Papers:
Title: "The role of deferred pay in retaining managerial talent." with Radha Gopalan and Sheng Huang

Abstract: We examine the role of deferred vesting of stock and option grants in reducing executive turnover. To the extent an executive forfeits all unvested stock and option grants if she leaves the firm, deferred vesting will increase the cost (to the executive) of early exit. Using pay Duration proposed in Gopalan, et al., (forthcoming) as a measure of the length of managerial pay, we find that CEOs and non-CEO executives with longer pay Duration are less likely to leave the firm voluntarily. Employing the vesting of a large prior-year stock/option grant as an instrument for Duration, we find the effect to be causal. CEOs with longer pay Duration are also less likely to experience a forced turnover and the sensitivity of forced CEO turnover to firm performance is significantly lower in firms that offer longer duration pay. Overall, our study highlights a strong link between compensation design and turnover for top executives.

Title: "Disagreement-induced CEO Turnover," with Sheng Huang and Anjan V. Thakor

Abstract: We develop and test a new explanation for forced CEO turnover. Investors may disagree with management on the optimal course of corporate actions due to heterogenous prior beliefs. Disagreement may be persistent and costly to firms, and may also induce forced CEO turnover. Subsequent to such turnover, firms with lower levels of investor-management agreement are more likely to hire an external CEO successor. Agreement improves following forced CEO turnover. The effect of disagreement on forced turnover is more pronounced with less entrenched CEOs and stronger shareholder governance, and also in firms that are financially more constrained. Overall, the evidence indicates how disagreement between the CEO and investors shapes one important aspect of corporate governance—the replacement of CEOs.

Title: "The role of stock liquidity in mergers & acquisitions." with Nishant Dass, Sheng Huang, and Vikram Nanda

Abstract: We examine how stock liquidity affects firms’ M&A decisions. Our identification strategy relies on the change in annual composition of Russell 2000 and Russell 1000 indices that exogenously affect component firms’ stock liquidity. We find that firms with more liquid stocks are more likely to make acquisitions and pay with equity. They also pay smaller premium and experience less negative deal announcement abnormal returns in equity deals. Consistent with the beneficial role of stock liquidity in acquisitions, firms tend to take measures to improve stock liquidity prior to acquisitions. Overall, our study highlights an important role of stock liquidity in corporate decisions.

Title: "The impact of stock liquidity on innovation: Evidence from Regression Discontinuity," with Nishant Dass, Sheng Huang, Vikram Nanda, and Steven (Chong) Xiao

Faculty Advisor(s):
B.A. Economics, Mathematics 2009, Hanover College, Hanover, IN

Kathmandu, Nepal