Doron Levit

Education

Ph.D. in Finance, Stanford University, 2011

M.A in Financial Economics, Hebrew University, 2006

B.Sc in Computer Science and Economics, Hebrew University, 2004

Academic Positions Held

Wharton: 2010present

Doron Levit and Nadya Malenko (2016), The Labor Market for Directors and Externalities in Corporate Governance, Journal of Finance, 71(2), pp. 775808.

Abstract: This paper examines how the labor market for directors and directors' reputational concerns affect corporate governance. We develop a model in which directors can influence corporate governance of their firms, and corporate governance, among other things, affects firms' demand for new directors. Whether the labor market rewards directors for having a reputation of being shareholderfriendly or managementfriendly is endogenous and depends on the aggregate level of corporate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance decisions across firms. Directors' reputational concerns amplify the corporate governance system in the sense that strong systems become stronger and weak systems become weaker. We derive implications for director appointments, multiple directorships, transparency of the corporate governance system, and board size.

Doron Levit and Adrian Corum (Working), Corporate Control Activism.

Abstract: We identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential solutions and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play. This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Moreover, we show that there is complementarity between shareholder activism and takeovers: Activists benefit from the possibility that companies in which they invest will become a takeover target, while bidders, who interpret the presence of an activist as a signal that the target is available for sale, are more likely start takeover negotiations when the target has an activist as a shareholder. Combined, the analysis sheds light on the interaction between M&A and shareholder activism.

Doron Levit, When Words Speak Louder Without Actions.

Abstract: This paper studies communication and intervention as mechanisms of corporate governance. I develop a model in which a privately informed principal can intervene in the decisions of the agent if the latter disobeys her instructions. The main result shows that intervention can prompt disobedience because it tempts the agent to challenge the principal to back her words with actions. This result provides a novel argument as to why a commitment not to intervene (and therefore, relying solely on communication) can be optimal. In this respect, words do speak louder without actions. The model is applied to managerial leadership, corporate boards, private equity, and shareholder activism.

Doron Levit, Alex Edmans, Devin Reilly (Under Review), The Effect of Diversification on Price Informativeness and Asset Values.

Abstract: We study how an asset's price informativeness and fundamental value depends on an informed investor's holdings of other, potentially unrelated, assets. If an asset is sold by a concentrated owner without other holdings, the price decline is low since the sale may be motivated by a liquidity shock. A diversified owner has the choice of which assets to sell upon a shock. Thus, a sale is more revealing of poor asset quality, increasing price informativeness. Even though prices are more revealing, the seller may acquire more information under diversification. When asset values are endogenous, diversification increases incentives to improve value since the asset commands a low price if sold.

Doron Levit (Under Review), Soft Shareholder Activism.

Abstract: This paper studies communications between investors and firms as a form of corporate governance. The main premise is that activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is in the best interest of the firm. In this framework, I show that voice (launching a public campaign) and exit (selling shares) enhance the ability of activists to govern through communication. The analysis identifies the factors that contribute to successful dialogues between investors and firms. It also shows that public communications are likely to be ineffective, justifying the prevalence of behindthescenes communications.

Doron Levit and Nadya Malenko (2011), NonBinding Voting for Shareholder Proposals, Journal of Finance, 66(5), 15791614, October 2011.

Abstract: Shareholder proposals are a common form of shareholder activism. Voting for shareholder proposals, however, is nonbinding in the sense that the management has the authority to reject the proposal even if it received majority support from shareholders. We analyze whether nonbinding voting is an effective mechanism for conveying shareholder expectations. We show that in contrast to binding voting, nonbinding voting generally fails to convey shareholder views when the interests of the manager and shareholders are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of nonbinding voting only if there is substantial conflict of interest between shareholders and the activist.

Doron Levit (Working), Expertise, Structure, and Reputation of Corporate Boards.

Abstract: This paper studies the optimal structure of the board with an emphasis on the expertise of directors. The analysis provides three main results. First, the expertise of a valuemaximizing board can harm shareholder value. Second, it is optimal to design a board whose members are biased against the manager, especially when their expertise is high. Third, directors' desire to demonstrate expertise can shift power from the board to the manager on the expense of shareholders. In this sense, the "friendliness" of the board is endogenous. The effect of these reputation concerns is amplified when the communication within the boardroom is transparent.

Doron Levit (2010), Advising Shareholders in Takeovers, Journal of Financial Economics, Forthcoming.

Abstract: This paper studies the advisory role of the board of directors in takeovers. I develop a model in which the takeover premium and the ability of the target board to resist the takeover are endogenous. The analysis relates the influence of the board on target shareholders and the reaction of the market to its recommendations to various characteristics of the acquirer and the target. I also show that the expected target shareholder value can decrease with the expertise of the board and it is maximized when the board is biased against the takeover. Generally, uninformative and ignored recommendations are not necessarily evidence that the target board has no influence on the outcome of the takeover. Perhaps surprisingly, under the optimal board structure, target shareholders ignore the recommendations of the board, which are never informative in equilibrium.

Past Courses

FNCE251 FNCE OF BUYOUTS & ACQS

The course focuses on financial tools, techniques, and best practices used in buyouts (financial buyers) and acquisitions (strategic buyers). While it will touch upon various strategic, organizational, and general management issues, the main lens for studying these transactions will be a financial one. It will explore how different buyers approach the process of finding, evaluating, and analyzing opportunities in the corporatecontrol market; how they structure deals and how deal structure affects both value creation and value division; how they add value after transaction completion; and how they realize their ultimate objectives (such as enhanced market position or a profitable exit). The course is divided into two broad modules. The first module covers mergers and acquisitions, and the second one studies buyouts by private equity partnerships. During the spring semester this course cannot be taken pass/fail.

FNCE751 FNCE OF BUYOUTS & ACQS

The focus of this course is on buying (or acquiring controlling stakes in) firms. The main topics to be covered are mergers and friendly acquisitions, hostile takeovers and buyouts. Using case studies, the course surveys the drivers of success in the transactions. While issues regarding motive and strategy will be discussed, financial theory would be the main lens used to view these control acquiring transactions. This will allow students to (1) evaluate transactions through valuation approaches and (2) structure deals employing financial innovation as a response to legal framework and economic frictions. This course should be of interest to students interested in pursuing careers as private equity investors, advisors in investment banking and corporate managers that deal with these issues. This course assumes familiarity with valuation analysis. During the spring semester students are not permitted to take this course pass fail.

FNCE932 TOPICS IN CORP FINANCE

This course covers Advanced theory and empirical investigations; financial desisions of the firm, dividends, capital structure, mergers, and takeovers.

Knowledge @ Wharton

Megamergers Are Back, but Will the Pace Last?, Knowledge @ Wharton 07/20/2015