Sophia_Hu@baylor.edu
Foster Business and Innovation 320.45
One Bear Place #98001
1621 S 3rd St.
Waco, TX 76706

I am an assistant professor of finance at the Hankamer School of Business, Baylor University. I received my Ph.D. in Business Administration – Finance from Mays Business School, Texas A&M University.

My research interests are Empirical Corporate Finance; Legislation, Regulation, and Corporate Policies; and Bridging Sub-fields in Finance Research.

PUBLICATIONS

• Can Blockchain Technology Help Overcome Contractual Incompleteness? Evidence from State Laws (Journal Link)
with Mark A. Chen, Joanna (Xiaoyu) Wang, and Qinxi Wu, Management Science 69(11):6540-6567, November 2023.

• Bank Regulatory Size Thresholds, Merger and Acquisition Behavior, and Small Business Lending (Journal Link)
with Shradha Bindal, Christa H.S. Bouwman, and Shane A. Johnson, Journal of Corporate Finance, 62, Article 101519, June 2020.

• Differential Bank Behaviors around the Dodd-Frank Act Size Thresholds (Journal Link)
with Christa H.S. Bouwman and Shane A. Johnson, Journal of Financial Intermediation, 34, pp.47-57, April 2018.

WORKING PAPERS

• Board Interlocks, Knowledge Spillovers, and Corporate Innovation (SSRN Link)
with Mark A. Chen, Joanna (Xiaoyu) Wang, and Qinxi Wu

Conferences: Midwest Finance Association 2024 Annual Meeting, SFS Cavalcade North America 2023, International Corporate Governance Society (ICGS) Annual Conference 2022, FMA 2022

Abstract: We examine whether interlocking boards of directors help to foster knowledge spillovers between firms. To capture exogenous variation in board interlocks, we use a novel identification strategy based on schedule conflicts between firms’ annual shareholder meeting dates. For a variety of patent-based measures, we find that innovation by a “source” firm has a greater effect on the quantity, quality, and relatedness of a “downstream” firm’s innovation when the firms share an interlock. We also document that spillovers are larger when an interlocking director is younger or non-busy. However, consistent with theories of board functioning, spillovers are reduced when either the source or downstream board has a higher proportion of outsiders or is less co-opted by the CEO. Our findings suggest that board interlocks provide an important channel by which scientific knowledge and innovation can flow between firms.

• Learning about the Details in CEO Compensation (SSRN Link)

Conferences: AFA 2019, Lone Star Finance Conference 2018

Abstract: I document the richness of CEO compensation packages and show that boards learn about the desirability of the many complex package features through observing how these features are associated with firm performance. I first capture the detailed features of plan-based awards for CEOs of the largest U.S. public firms in a vector with more than 1,300 elements. I then demonstrate the complexity of boards' decisions on adding and dropping the detailed features. I hypothesize that boards learn about the efficacy of complex features by observing their correlation with performance---both at their own firms and at other firms. To test these hypotheses, I measure the similarity between any two compensation packages using a metric that assigns a shorter distance to more similar packages. My results support my learning hypotheses: firms that perform well in the current year award similar packages to their CEOs in the following year, whereas firms that perform poorly significantly change their packages in the following year; moreover, firms adjust their own CEO compensation packages to be more similar to that of well-performing firms, and less similar to that of poorly performing firms. These results hold after controlling for the effects from compensation peer firms, compensation-consultant sharing firms, board interlocking firms, and product market peers. I further show that a focal firm experiences better performance when its CEO compensation package becomes more similar to those used by its well-performing compensation benchmark firms.    This paper demonstrates the importance of capturing the multi-dimensional details of CEO plan-based awards and studying changes in compensation packages in a holistic manner.

• Asset Pricing Under Prior-Induced Beta Uncertainty (SSRN Link)
with Shane A. Johnson and Yan Liu

Conferences: CICF 2017; FMA 2017

Abstract: We show theoretically that when Bayesian investors face time-series uncertainty about assets' risk exposures, differences in their priors affect the pricing of risk in the cross-section: different priors for the same asset can generate differences in perceived risk exposures, and thereby differences in required returns. The main testable implication is that the relation between required return and risk factor betas is steeper under a low-beta prior than under a high-beta prior. Using novel proxies for investors' priors about assets' exposures to risk factors, we find strong empirical support for our main prediction. Our results have important implications for understanding how prior-induced parameter uncertainty affects asset returns.

• Do Maximizer Executives Make Better Acquisitions? Evidence from CEO First Marriage Age

Abstract: Relatively little is known about what determines the length of time that CEOs take in making major decisions. One plausible determinant is being a maximizer, which is a personality trait indicating that one seeks first best choices even if doing so requires significantly more time. I use age of first marriage as a proxy for the extent to which CEOs are maximizers. The results show that CEOs who marry later wait a longer time before announcing their first important M&A deals, and that the market responds more positively to deals announced by CEOs who marry later. These results are consistent with the findings that maximizers, who take more time to carefully decide, generate objectively better outcomes.