Lucian (Luke) Taylor
Ph.D. Student, Finance

Graduate School of Business, University of Chicago



[curriculum vitae]   [email me]  

Job Market 2008

I will attend the AEA and AFA conference in New Orleans.
Dissertation committee: Lubos Pastor (chair), Steven Kaplan, Gregor Matvos, Morten Sorensen, Pietro Veronesi

Recent Work

Why are CEOs Rarely Fired? Evidence from Structural Estimation
(Job market paper; revised January 8, 2008)

On average, 2% of CEOs are fired each year. The literature provides little guidance for evaluating this magnitude. To provide a benchmark, I solve and estimate a dynamic model of forced CEO turnover. The model features costly turnover and learning about CEO skill. I estimate the model by applying the simulated method of moments to data on CEO turnover and firm profitability. To rationalize the observed rate of forced turnover, I find that boards must perceive turnover costs to be 5.8% of the firm's assets, or $168 million. These costs mainly reflect personal costs for the board rather than real costs for shareholders, although not all evidence supports this view. I also find that boards pay considerable attention to information besides profitability when evaluating CEO skill, which helps explain why profitability poorly predicts forced CEO turnover in the data. The model also helps explain average changes in profitability and stock prices around forced turnover, and the relationship between forced turnover and tenure. In almost all cases, the model matches these empirical patterns both in terms of direction and magnitude.


Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Profitability
(with Lubos Pastor and Pietro Veronesi)
Forthcoming, The Review of Financial Studies (accepted 11/21/2007)

We develop a model of the optimal IPO decision in the presence of learning about the average profitability of a private firm. The entrepreneur trades off diversification benefits of going public against benefits of private control. Going public is optimal when the firm's expected future profitability is sufficiently high. The model predicts that firm profitability should decline after the IPO, on average, and that this decline should be larger for firms with more volatile profitability and firms with less uncertain average profitability. These predictions are supported empirically in a sample of 7,183 IPOs in the U.S. between 1975 and 2004.
Technical Appendix

Other Papers