PhD Oral Exam - Shafu Zhang, Business Administration
When studying for a doctoral degree (PhD), candidates submit a thesis that provides a critical review of the current state of knowledge of the thesis subject as well as the student’s own contributions to the subject. The distinguishing criterion of doctoral graduate research is a significant and original contribution to knowledge.
Once accepted, the candidate presents the thesis orally. This oral exam is open to the public.
Essay 1: I investigate how CEO affects the likelihood that a firm experiences product harm crisis (PHC). Specifically, I find that a CEO’s psychological property in risk taking will increase a firm’s PHC likelihood but such association is mitigated by the CEO’s rich operational and production experience. I also find that corporate governance provides an effective mechanism to constrain a CEO’s inappropriate risk taking so that the PHC likelihood of an inexperienced risk-seeking CEO is attenuated when directors have related expertise to fill up the vacuum in the CEO’s background. In addition, I find that product market competition will improve production efficiency with higher product quality and further reduce the PHC likelihood.
Essay 2: I investigate the impact of PHC on firms’ financial reporting policy. I find evidence that firms experiencing a product harm crisis engage in income-increasing earnings management, and the upward earning management is positively associated with the severity of the product harm crisis. Moreover, income-increasing earnings management is most prominent for crisis firms that produce durable goods, have industrial customers, and have CEOs who possess greater equity incentive and who are earlier in their tenure. Furthermore, upward earnings management helps firms retain major customers and reduces the propensity of a bonus cut and forced turnover for the CEO.
Essay 3: I study debt market reaction to the announcements of recall firms. I find that banks charge 19% higher interest spreads on loans to recall firms after product recall announcements. In addition, banks monitor recall firms more closely by using tighter non-price terms I further find that the effects of product recall on debt contracting are more pronounced for firms with less independent board of directors, lower ex-ante ability to recover from product recalls, and with multiple product recalls. Taken as a whole, my findings suggest that banks, as informed stakeholders, generally perceive product recalls as a credit risk factor and react to this risk in debt contracting.