Alma Cohen

Professor of Empirical Practice

Griswold 305

617-496-7353

Assistant: Marina Apostol / 617-496-1670

Alma Cohen & Charles C.Y. Yang, How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment, 110 J. Fin. Econ. 627 (2013).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Finance
,
Shareholders
,
Corporate Governance
Type: Article
Abstract
The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings ― separated by several weeks and going in opposite directions ― that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.
Alma Cohen & Liran Einav, Estimating Risk Preferences from Deductible Choice, 93 Am. Econ. Rev. 745 (2007).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Insurance Law
,
Empirical Legal Studies
Type: Article
Abstract
We develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts. We account for adverse selection by modeling unobserved heterogeneity in both risk (claim rate) and risk aversion. We find large and skewed heterogeneity in risk attitudes. In addition, women are more risk averse than men, risk aversion exhibits a U-shape with respect to age, and proxies for income and wealth are positively associated with absolute risk aversion. Finally, unobserved heterogeneity in risk aversion is greater than that of risk, and, as we illustrate, has important implications for insurance pricing.
Alma Cohen & Rajeev H. Dehejia, The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities, 47 J.L. & Econ. 357 (2004).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Insurance Law
,
Empirical Legal Studies
Type: Article
Abstract
This paper investigates the incentive effects of automobile insurance, compulsory insurance laws, and no-fault liability laws on driver behavior and traffic fatalities. We analyze a panel of 50 U.S. states and the District of Columbia from 1970-1998, a period in which many states adopted compulsory insurance regulations and/or no-fault laws. Using an instrumental variables approach, we find evidence that automobile insurance has moral hazard costs, leading to an increase in traffic fatalities. We also find that reductions in accident liability produced by no-fault liability laws have led to an increase in traffic fatalities (estimated to be on the order of 6%). Overall, our results indicate that, whatever other benefits they might produce, increases in the incidence of automobile insurance and moves to no-fault liability systems have significant negative effects on traffic fatalities.
Alma Cohen & Charles C.Y. Wang, Reexamining Staggered Boards and Shareholder Value 125 J. Fin. Econ. 637 (2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Abstract
Cohen and Wang (2013) (CW2013) provide evidence consistent with market participants perceiving staggered boards to be value reducing. Amihud and Stoyanov (2016) (AS2016) contests these findings, reporting some specifications under which the results are not statistically significant. We show that the results retain their significance under a wide array of robustness tests that address the concerns expressed by AS2016. Our empirical findings reinforce the conclusions of CW2013.
Lucian A. Bebchuk, Alma Cohen & Scott Hirst, The Agency Problems of Institutional Investors (June 1, 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Governance
Type: Other
Abstract
We analyze how the rise of institutional investors has transformed the governance landscape. While corporate ownership is now concentrated in the hands of institutional investors that can exercise stewardship of those corporations that would be impossible for dispersed shareholders, the investment managers of these institutional investors have agency problems vis-à-vis their own investors. We develop an analytical framework for examining these agency problems and apply it to study several key types of investment managers. We analyze how the investment managers of mutual funds - both index funds and actively managed funds - have incentives to under-spend on stewardship and to side excessively with managers of corporations. We show that these incentives are especially acute for managers of index funds, and that the rise of such funds has system-wide adverse consequences for corporate governance. Activist hedge funds have substantially better incentives than managers of index funds or active mutual funds, but their activities do not provide a complete solution for the agency problems of institutional investors. Our analysis provides a framework for future work on institutional investors and their agency problems, and generates insights on a wide range of policy questions. We discuss implications for disclosure by institutional investors; regulation of their fees; stewardship codes; the rise of index investing; proxy advisors; hedge funds; wolf pack activism; and the allocation of power between corporate managers and shareholders.
Lucian A. Bebchuk & Alma Cohen, Recent Board Declassifications: A Response to Cremers and Sepe (May 1, 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Other
Abstract
This note offers an initial response to a study released earlier this month by Martijn Cremers and Simone Sepe, “Board Declassification Activism: The Financial Value of the Shareholder Rights Project.” Putting aside methodological questions about their analysis and accepting their results “as is,” we show that the results of this study do not provide a basis for opposing board declassifications. Appropriately interpreted, the results provide some significant evidence that declassifications are beneficial and no evidence that they are value-reducing. The results obtained for preceding years in prior published work by the authors either do not hold or are substantially reversed in the period examined by the current study. Overall, the results of the current study contradict and undermine the conclusions in the authors’ earlier published work in support of staggered boards.
Alma Cohen & Charles C.Y. Wang, Staggered Boards and Shareholder Value: A Reply to Amihud and Stoyanov (Dec. 1, 2015).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Finance
,
Corporate Governance
,
Shareholders
Type: Article
Abstract
In a paper published in the JFE in 2013, we provided evidence that market participants perceive staggered boards to be on average value-reducing. In a recent response paper, Amihud and Stoyanov (2015) “contest” our results. They advocate using alternative methods for estimating risk-adjusted returns and excluding some observations from our sample. Amihud and Stoyanov claim that making such changes renders our results not significant (though retaining their direction) and conclude that staggered boards have no significant effect on firm value. This paper examines and replies to the Amihud-Stoyanov challenge. We question their methodological claims, study the consequences of following their suggestions, and conduct additional robustness tests. Our analysis shows that the evidence is overall consistent with the results and conclusions of our JFE paper.
Alma Cohen, Robert J. Jackson & Joshua Mitts, The 8-K Trading Gap (Columbia Law & Econ. Working Paper No. 524, Sept. 7, 2015).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Securities Law & Regulation
,
Corporate Law
Type: Article
Abstract
When a significant event occurs at a publicly traded company, federal law requires the firm to disclose this information to investors in a securities filing known as a Form 8-K. But the firm need not disclose immediately; instead, SEC rules give companies four business days after the event occurs within which to file an 8-K. These rules thus create a period during which market-moving information is known by those inside the firm but not most public-company investors — a period we call the “8-K trading gap.” In this Article, we study how corporate insiders trade their company’s stock during the 8-K trading gap. We develop a unique dataset of 15,419 Form 8-Ks with trades by insiders during this gap. We identify systematic abnormal returns of 42 basis points on average, per trade, from trades by insiders during the 8-K gap. When insiders engage in an unusual transaction during the gap — open-market purchases of their own company’s stock — they earn even larger abnormal returns of 163 basis points. We also show that, when they engage in such purchases, insiders are correct about the directional impact of the 8-K filing more often than not — and that the probability that this finding is the product of random chance is virtually zero. To examine whether it is the expertise of the insiders, or the value associated with the information, that drives insider returns, we then focus on a type of 8-K that reveals positive information: those that announce new agreements with the company’s business partners. We show, without reference to any specific insider transaction, that a trading strategy of buying on the date such an agreement is struck and selling immediately before the agreement is disclosed yields, on average, abnormal returns of 35.4 basis points. We also demonstrate that insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers. In light of the potential concerns raised by these findings, lawmakers should reconsider the effects of information-forcing rules such as those governing Form 8-K on the incidence and profitability of trading by insiders.
Alma Cohen, Nadav Levy & Roy Sasson, Termination Risk and Agency Problems: Evidence from the NBA (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 819, 2015).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Gaming & Sports Law
,
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
When organizational structures and contractual arrangements face agents with a significant risk of termination in the short term, such agents may under-invest in projects whose results would be realized only in the long term. We use NBA data to study how risk of termination in the short term affects the decision of coaches. Because letting a rookie play produces long-term benefits on which coaches with a shorter investment horizon might place lower weight, we hypothesize that higher termination risk might lead to lower rookie participation. Consistent with this hypothesis, we find that, during the period of the NBA’s 1999 collective bargaining agreement (CBA) and controlling for the characteristics of rookies and their teams, higher termination risk was associated with lower rookie participation and that this association was driven by important games. We also find that the association does not exist for second-year players and that the identified association disappeared when the 2005 CBA gave team owners stronger incentives to monitor the performance of rookies and preclude their underuse.
Anat Bracha, Alma Cohen & Lynn Conell-Price, Affirmative Action and Stereotype Threat (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 805, 2015).
Categories:
Discrimination & Civil Rights
,
Labor & Employment
Sub-Categories:
Gender & Sexuality
,
Employment Discrimination
Type: Article
Abstract
This paper provides experimental evidence on the effect of affirmative action (AA). In particular, we investigate whether affirmative action has a ”stereotype threat effect” – that is, whether AA cues a negative stereotype that leads individuals to conform to the stereotype and adversely affects their performance. Stereotype threat has been shown in the literature to be potentially significant for individuals who identify strongly with the domain of the stereotype and who engage in complex stereotype-relevant tasks. We therefore explore this question in the context of gender-based AA for a complex math task. In this context, the stereotype is most relevant for women with high math ability, and the stereotype threat effects can be expected to work in the opposite direction to AA’s competition effect that encourages women to compete. We find that, consistent with the presence of a stereotype threat, AA has an overall negative effect on the performance of high-ability women performing complex math tasks.
Alma Cohen, Alon Klement & Zvika Neeman, Judicial Decision Making: A Dynamic Reputation Approach, 44 J. Legal Stud. S133 (2015).
Categories:
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Empirical Legal Studies
,
Judges & Jurisprudence
Type: Article
Abstract
We seek to contribute to an understanding of how judicial elections affect the incentives and decisions of judges. We develop a theoretical model suggesting that judges who are concerned about their reputation will tend to decide against their prior decisions as they approach elections. That is, judges who imposed a large number of severe sentences in the past and are thus perceived to be strict will tend to impose less severe sentences prior to elections. Conversely, judges who imposed a large number of light sentences in the past and are thus perceived to be lenient will tend to impose more severe sentences prior to elections. Using data from the Pennsylvania Commission on Sentencing, we test, and find evidence consistent with, the predictions of our model.
Lucian Bebchuk, Alma Cohen & Charles C.Y. Wang, Golden Parachutes and the Wealth of Shareholders, 25 J. Corp. Fin. 140 (2014).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Economics
,
Finance
,
Shareholders
,
Corporate Governance
Type: Article
Abstract
Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.
Lucian A. Bebchuk, Alma Cohen & Charles C.Y. Wang, Learning and the Disappearing Association Between Governance and Returns, 108 J. Fin. Econ. 323 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
Type: Article
Abstract
The correlation between governance indices and abnormal returns documented for 1990-1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation's disappearance was associated with increases in market participants' attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.
Alma Cohen, Rajeev H. Dehejia & Dmitri Romanov, Financial Incentives and Fertility, 95 Rev. Econ. & Stat. 1 (2013).
Categories:
Family Law
,
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Economics
,
Empirical Legal Studies
,
Law & Economics
,
Reproduction
Type: Article
Abstract
Using panel data on over 300,000 Israeli women from 1999 to 2005, we exploit variation in Israel's child subsidy to identify the impact of changes in the price of a marginal child on fertility. We find a positive, statistically significant, and economically meaningful price effect on overall fertility and, consistent with Becker (1960) and Becker and Tomes (1976), a small effect of income on fertility, which is negative at low and positive at high income levels. We also find a price effect on fertility among older women, suggesting that part of the overall effect is due to a reduction in total fertility.
Alma Cohen & Peter Siegelman, Testing for Adverse Selection in Insurance Markets, 77 J. Risk & Ins. 39 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Insurance Law
Type: Article
Abstract
This article reviews and evaluates the empirical literature on adverse selection in insurance markets. We focus on empirical work that seeks to test the basic coverage-risk prediction of adverse selection theory - that is, that policyholders who purchase more insurance coverage tend to be riskier. The analysis of this body of work, we argue, indicates that whether such a correlation exists varies across insurance markets and pools of insurance policies. We discuss various reasons why a coverage-risk correlation may not be found in some pools of insurance policies. The presence of a coverage-risk correlation can be explained either by moral hazard or adverse selection, and we discuss methods for distinguishing between them. Finally, we review the evidence on learning by policyholders and insurers.
Lucian A. Bebchuk, Alma Cohen & Holger Spamann, The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008, 27 Yale J. on Reg. 257 (2010).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Banking
,
Commercial Law
,
Finance
,
Financial Markets & Institutions
,
Shareholders
,
Corporate Law
,
Administrative Law & Agencies
Type: Article
Abstract
The standard narrative of the meltdown of Bear Stearns and Lehman Brothers assumes that the wealth of the top executives at these firms was largely wiped out along with their firms. In the ongoing debate about regulatory responses to the financial crisis, commentators have used this assumed fact as a basis for dismissing both the role of compensation structures in inducing risk-taking and the potential value of reforming such structures. This Article provides a case study of compensation at Bear Stearns and Lehman Brothers during 2000-2008 and concludes that this assumed fact is incorrect. We find that the top-five-executive teams at these firms cashed out large amounts of performance-based compensation during this period. From 2000-2008, they were able to cash out large amounts of bonus compensation that were not clawed back when the firms collapsed, and to pocket large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion, respectively, from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives' initial holdings at the beginning of the period, and the executives' net payoffs for the period were thus decidedly positive. The divergence between how the top executives and their shareholders fared implies that it is not possible to rule out, as standard narratives suggest, that the executives' pay arrangements provided them with excessive risk-taking incentives. We discuss the implications of our analysis for understanding the possible role that pay arrangements have played in the run-up to the financial crisis and how they should be reformed going forward.
Lucian Bebchuk, Alma Cohen & Allen Ferrell, What Matters in Corporate Governance?, 22 Rev. Fin. Stud. 783 (2009).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
Type: Article
Abstract
We investigate the relative importance of the twenty-four provisions followed by the Investor Responsibility Research Center (IRRC) and included in the Gompers, Ishii, and Metrick governance index (Gompers, Ishii, and Metrick 2003). We put forward an entrenchment index based on six provisions: staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes, and supermajority requirements for mergers and charter amendments. We find that increases in the index level are monotonically associated with economically significant reductions in firm valuation as well as large negative abnormal returns during the 1990-2003 period. The other eighteen IRRC provisions not in our entrenchment index were uncorrelated with either reduced firm valuation or negative abnormal returns.
Alma Cohen, The Disadvantages of Aggregate Deductibles, 6 B.E. J. of Econ. Analysis & Pol'y 1538 (2006).
Categories:
Disciplinary Perspectives & Law
,
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Law & Economics
Type: Article
Abstract
This paper analyzes the choice of deductible in insurance contracts that insure against a risk that, as is common, might materialize more than once during the life of the policy. As was established by Arrow (1963), from the perspective of risk-bearing costs, the optimal contract is one that uses an aggregate deductible that applies to the aggregate losses incurred over the life of the policy. Aggregate deductibles, however, are uncommon in practice. This paper identifies two disadvantages that aggregate deductibles have. Aggregate deductibles are shown to produce higher expected verification costs and moral hazard costs than contracts that apply a per-loss deductible to each loss that occurs. I further show that each of these disadvantages can make an aggregate deductible contact inferior to a contract with per loss deductibles. The results of the analysis can help explain the rare use of aggregate deductibles and, in addition, might explain why umbrella policies that cover all types of losses are rarely used.
Lucian A. Bebchuk & Alma Cohen, The Costs of Entrenched Boards, 78 J. Fin. Econ. 409 (2005).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Shareholders
,
Corporate Law
,
Corporate Governance
,
Empirical Legal Studies
Type: Article
Abstract
This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. Staggered boards, which a majority of U.S. public companies have, substantially insulate boards from removal in either a hostile takeover or a proxy contest. We find that staggered boards are associated with an economically meaningful reduction in firm value (as measured by Tobin's Q). We also provide suggestive evidence that staggered boards bring about, and not merely reflect, an economically significant reduction in firm value. Finally, the correlation with reduced firm value is stronger for staggered boards that are established in the corporate charter (which shareholders cannot amend) than for staggered boards established in the company's bylaws (which shareholders can amend).
Alma Cohen, Asymmetric Information and Learning: Evidence from the Automobile Insurance Market, 87 Rev. Econ. & Stat. 197 (2005).
Categories:
Disciplinary Perspectives & Law
,
Corporate Law & Securities
Sub-Categories:
Insurance Law
,
Law & Economics
,
Empirical Legal Studies
Type: Article
Abstract
This paper tests the predictions of adverse-selection models using data from the automobile insurance market. I find that, in contrast to what recent research suggests, the evidence is consistent with the presence of informational asymmetries in this market: new customers choosing higher insurance coverage are associated with more accidents. Consistent with the possibility of policyholders' learning about their risk type, such a coverage-accidents correlation exists only for policyholders with enough years of driving experience. The informational advantage that new customers with driving experience have over the insurer appears to arise in part from customers' underreporting their past claim history: policyholders switching to new insurers are disproportionately ones with a poor claims history, and new customers tend to underreport their past claims history when joining a new insurer.
Lucian A. Bebchuk & Alma Cohen, Firms' Decisions Where to Incorporate, 48 J.L. & Econ. 383 (2003).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Government & Politics
Sub-Categories:
Corporate Law
,
Empirical Legal Studies
,
State & Local Government
Type: Article
Abstract
This paper empirically investigates the decisions of publicly traded firms where to incorporate. We study the features of states that make them attractive to incorporating firms and the characteristics of firms that determine whether they incorporate in or out of their state of location. We find that states that offer stronger antitakeover protections are substantially more successful both in retaining in-state firms and in attracting out-of-state incorporations. We estimate that, compared with adopting no antitakeover statutes, adopting all standard antitakeover statutes enabled the states that adopted them to more than double the percentage of local firms that incorporated in-state (from 23% to 49%). Indeed, we find no evidence that the incorporation market has even penalized the three states that passed antitakeover statutes widely viewed as detrimental to shareholders. We also find that there is commonly a big difference between a state's ability to attract incorporations from firms located in and out of the state, and we investigate several possible explanations for this home-state advantage. Our findings have significant implications for corporate governance, regulatory competition, and takeover law.
Lucian Bebchuk, Alma Cohen & Allen Ferrell, Does the Evidence Favor State Competition in Corporate Law?, 90 Calif. L. Rev. 1775 (2002).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Law
,
Business Organizations
,
State & Local Government
Type: Article

Education History

Current Courses

Course Catalog View

Griswold 305

617-496-7353

Assistant: Marina Apostol / 617-496-1670