Joanne (Juan)  Chen 

Optimal Managerial Authority 

• 2022 Best Paper in Finance Theory on the Job Market, Runner-up, awarded by the Finance Theory Group

• 2023 Yihong Xia Best Paper Award at CICF

Abstract: I develop a dynamic agency model to investigate optimal managerial authority and its interaction with managerial compensation. The model shows that when hiring a manager, the principal delegates authority that is unresponsive to either the manager's outside options or the firm's recruitment costs, in contrast to promised compensation, which increases in both. Over time, both the manager's authority and his compensation rise after good performances and decline after bad realizations. Authority-performance sensitivity decreases as the manager's authority grows, resembling entrenchment. In contrast, pay-performance sensitivity increases with the manager's authority. If managerial authority can be adjusted only infrequently, the optimal contract may allow for self-dealing. Moreover, the model reveals that early-career luck plays a disproportionate role in determining the manager's authority and lifetime utility.

Presentations: EFA 2023 (scheduled), CICF 2023, WFA 2023, Paris December 2022, BU Economics Micro Theory workshop 2022, Finance Theory Webinar 2022, NFA 2022, Cambridge Corporate Finance Theory Symposium 2022, Finance Theory Group Summer Meeting 2022,  SFS Cavalcade North America 2022, FMCG PhD Symposium, Queen Mary University of London, Northwestern University (Kellogg), UNC-Chapel Hill (Kenan-Flagler), Erasmus University Rotterdam, Boston University (Questrom), UT Dallas (Naveen Jindal), Warwick Business School, Copenhagen Business School, Shanghai Advanced Institute of Finance, University of Amsterdam, EWMES 2021, Toulouse School of Economics Brownbag, EFA Doctoral Tutorial 2021, World Finance Conference 2021, London School of Economics

Platform Enterprises: Financing, Investment, and Network Growth   

Abstract: I develop a tractable micro-founded dynamic platform model featuring cross-group network effects. Networks are analogous to capital assets, and the platform enterprise invests in the networks by making subsidies to users. The paper characterizes the entrepreneur's optimal financing and investment strategies. The main findings are: 1) making highly aggressive subsidies by using up available funds is optimal; 2) per-transaction subsidies decrease as the network grows; 3) the platform with stronger network effects has a propensity to make more subsidies at initial stages; 4) staged financing mitigates the limited enforcement problem, and ceteris paribus, the number of funding rounds decreases with the profitability of the platform and increases with required profits by financiers; 5) the value of funds raised each round increases and the financing frequency decreases over time. 

Presentations:  Owners as Strategists Conference 2022, FMA 2020, AFA poster 2020, KWC Conference in Entrepreneurial Finance , London Schoool of Economics

Work in Progress

Corporate Governance Time Bombs, with Martin Oehmke  (Draft available upon request)

Why are “corporate time bombs’’ (festering problems that can lead to extreme losses for a firm) often kept unsolved? We show that, if the manager’s tenure is uncertain, it can be optimal to provide only low-powered incentives to defuse corporate time bombs, so that procrastination is a rational response. If the problem remains unsolved after the incumbent manager’s departure, incentives given to successive managers to defuse the time bomb are even lower, due to the principal’s belief updating. The model implies that time bombs have to be defused within a certain time frame and shows that frequent managerial turnover leads to missed opportunities for solving the problem. 

Presentations:  Yale Junior Finance Conference 2023 (Scheduled), WFA-ECWCF 2023, BU Questrom Brownbag 2023

Teaching

Boston University:

Lecturer:    FE449 Corporate Financial Management   

London School of Economics (2016-2022):

Class Teacher:    FM250 Finance     

Class Teacher:    FM101 Finance   

Class Teacher:    FM212 Principles of Finance    

Teaching Assistant:    FM421 Applied Corporate Finance  

Teaching Assistant:    FM422 Corporate Finance

Teaching Assistant:    FM445 Portfolio Management 

Conference Discussions

• Externalities of Responsible Investments

By Michele Bisceglia, Alessio Piccolo, and Jan Schneemeier, 2nd Annual Holden Conference at Indiana University

• Delegated Blocks

By Amil Dasgupta and Richmond Mathews, WFA 2023

• Socially Optimal Eligibility Criteria for ESG Funds

By Roman Inderst and Marcus Opp,  FIRS 2023

• Blockholder and CEO Wealth-performance Sensitivity

By Huang Sheng,  Paris December Finance Meeting 2022

• Distressed Firm Restructurings and Hedge Funds with Expertise: Saviors or Vultures?

By Nina Baranchuk and Michael Rebello,  EFA 2022

• Global Zombies

By Edward Altman, Rui Dai, and Wei Wang,  CICF 2022

• Does Proxy Advice Allow Funds to Cast Informed Votes?

By John G. Matsusaka and Chong Shu,  FIRS 2022

• Implications of the Term Structure of Interest Rates fcor the Duration of the Corporate Investment

By Antoine Hubert de Fraisse,  FIRS PhD Session 2022

• Foundation-controlled Firms and CEO Compensation 

By Van Diem Nguyen and Reda M Moursli,  WFC 2021

• Effectiveness of monitoring, managerial entrenchment, and corporate cash holdings 

By Panagiotis Couzo, Shantanu Banerjee, and Grzegorz Pawlina,  FMA 2020

• Raising Capital under Demand Uncertainty 

By Spyros Terovitis,  KWC Conference in Entrepreneurial Finance 2019

Refereeing:

Journal of Economic Dynamics and Control, Review of Corporate Finance Studies, Review of Financial Studies (*2)