George (Yuqi) Gu - Fox School of Business - Temple University

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WORKING PAPERS • “Creditor Control and Corporate Innovations: Evidence from Debt Covenant Violations” joint with Connie X. Mao (Job Market Paper) Abstract: In this paper, we investigate the impact of creditor control on corporate innovation via the lens of corporate events - debt covenant violation, where control right is shifted from equity-holders to creditors. By employing differences-in-differences tests, we document that firms experience a significant cut in corporate innovation following financial covenant breaches, especially in innovation intensive industries. Furthermore, we show that creditor control plays a direct role in curbing corporate innovative activities upon covenant violations. We find that in the presence of stronger bank control, violation firms experience a significantly larger reduction in both the quantity (as measured by number of patents) and quality (as measured by non-self citations received) of innovations. Interestingly, we find that banks’ expertise in certain innovative industry can moderate the adverse effect of creditor control on innovations in those industries. These results are consistent with the argument that banks are less tolerant of failures and debt covenants restrict manager flexibility. Our findings also suggest that banks’ experience, knowledge, and expertise in certain innovative industries allow them to have a better assessment about borrowers’ innovative projects, and thereby mitigating the agency conflict. • “Creditor Control and CEO Compensation: Evidence from Debt Covenant Violations” joint with Connie X. Mao Abstract: We present evidence that creditor control has significant impact on CEO compensation. CEOs experience a sharp cut of 17% of excessive pay following financial covenant violations. Differences-in-differences test shows that the reduction in abnormal CEO compensations is only associated with violation firms, not with their matched nonviolation peers during the same time period. Furthermore, we find that the cut in excessive pay upon violations is greater in firms facing stronger creditor control, i.e., firms borrowed from banks with which they have a stronger prior lending relationship or high reputation banks. Despite the fact that the prior literature has documented greater CEO compensations in firms with weaker shareholder governance, we find that shareholder governance has little significant impact on the reduction of abnormal CEO compensations following debt covenant violations. In addition, we find that managerial pay-risk sensitivity (vega) is significantly reduced after covenant violation, particularly in the presence of greater creditor control power. In contrast, covenant violations are not associated with any significant change in managerial pay-performance sensitivity (delta). • “The Role of Entry Deterrence in Explaining Why Prices Fall During Times of High Demand” joint with Jose M. Plehn-Dujowich Abstract: Empirical evidence suggests that for certain products, ranging from groceries to automobiles, firms lower prices in times of high demand. The theory of perfect competition, price war models of collusive behavior, and the traditional limit pricing model are inconsistent with the evidence. This paper proposes that, in the spirit of limit pricing theory, incumbents lower prices in times of high demand so as to prevent entry into their product market. We prove this in the context of a standard model of entry deterrence with complete information and an endogenous number of potential entrants. The incumbent deters entry by engaging in marginal cost pricing when demand is high because that is when the market to be monopolized is largest. 2
WORK IN PROGRESS • “Time Horizon and Corporate Risk Management” joint with J. Jay Choi • “Covenant Violation and Corporate Fraud” joint with Jian Zhang • “The effects of traditional and social media exposures on brand purchase: Applications of multi-channel marketing data” awarded by Wharton Customer Analytics Initiative Research Award, joint with Lijia Xie, ChihChien Chen, and Peiyu Chen CONFERENCE PRESENTATIONS “Creditor Control and CEO Compensation: Evidence from Debt Covenant Violations” joint with Connie X. Mao • Presented at the 2012 Eastern Finance Association Annual Meeting (Boston, MA) • Presented at the 2012 Financial Management Association Annual Meeting (Atlanta, GA) SERVICE • Jiangsu Certified Public Accounts Program Summer 2012 Translate the accounting seminars • Hong Kong - GuangDong Youth Exchange Promotion Association 2006 – present Help to organize managerial meetings and students’ travel programs AWARD • University of Hong Kong Chinese Student Fellowship 2004 – 2007 • Graduate Student Scholarship 2007 – 2008 CERTIFICATE Society of Actuaries, EXAM P (Probability), EXAM FM (Financial Mathematics), EXAM M (Actuarial Models), EXAM C (Construction and Evaluation of Actuarial Models) REFERENCES Professor Connie X. Mao (Chair) Associate Professor of Finance Fox School of Business and Management Temple University Philadelphia, PA 19122 Phone: (215) 204-4895 Email: cmao@temple.edu Professor Lalitha Naveen Associate Professor of Finance Fox School of Business and Management Temple University Philadelphia, PA 19122 Phone: (215) 204-6435 Email: lnaveen@temple.edu Professor Jongmoo Jay Choi Laura H. Carnell Professor of Finance and International Business Fox School of Business and Management Temple University Philadelphia, PA 19122 Phone: (215) 204-5084 Email: jjchoi@temple.edu 3
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George (Yuqi) Gu - Fox School of Business - Temple University

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