Metzger, Daniel
(2011)
Human capital and decision making within the firm.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis analyzes the market for executive and non-executive directors of firms
with particular emphasis on the role of human capital such as industry expertise.
The first chapter analyzes how the human capital of CEOs affects corporate decision
making and ultimately corporate performance. Analyzing diversifying mergers and
acquisitions, it shows that CEO characteristics matter for the bidders' performance
in takeovers. When the bidding CEO has experience in the target's industry, the
abnormal announcement returns are between two and three times higher than those
generated by a CEO who is new to that industry. We provide evidence that this
performance is mainly driven by an experienced CEO's ability to capture a larger
fraction of the surplus. Industry experts redistribute surplus in favor of their share-
holders by negotiating better deals and by paying a lower premium. We also ?nd
that industry expert CEOs select low surplus deals on average. We argue that this
evidence is consistent with industry experts having superior negotiation ability.
The second chapter analyzes the determinants of the board structure (including
human capital, such as industry expertise) in banks. We show that country charac-
teristics explain most of the cross-sectional variation in bank board independence.
In contrast, country characteristics have little explanatory power for the fraction
of outside bank directors with experience in the banking industry. Exploiting the
time-series dimension of the sample, we show that changes in bank characteristics
are not robustly associated with changes in board independence, while changes in
board experience are positively related to changes in bank size and negatively re-
lated to changes in performance. The evidence suggests that country-speci?c laws
and regulations a?ect the composition of boards of banks mainly through require-
ments for director independence.
The third chapter analyzes the careers of top executive directors. Using a sam-
ple of board members of the largest US companies, I provide exhaustive descriptive
statistics on several dimensions of their careers. For instance, I am analyzing the
career paths of CEOs with respect to their industry experience and their promotion
within and between ?rms. Investigating CEO turnovers in detail, I report several
new ?ndings that raise potential questions for future research. Moreover, it also
analyzes how changes in the market environment such as shocks to certain indus-
tries a?ect their career progression. I show that individuals whose industries are
performing badly are less likely to be promoted to a CEO position. These ?ndings
suggest that luck is not only a?ecting CEO pay but also who is promoted to a CEO
position at ?rst. A promising route for future research might be a more rigorous
analysis of the within-?rm dynamics of executive careers.
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