My dissertation consists of three chapters which explores various aspects of executive incentives. In the first chapter, I examine the relation between executive equity pay and stock returns. By compensating CEOs and CFOs differently, shareholders can create incentive conflicts between the firms’ top two managers that potentially affects shareholder wealth. On the one hand, incentive conflict potentially benefits shareholders by improving information exchange and establishing checks and balances in decisions made jointly by the CEO and CFO but alternatively, can harm shareholders by increasing risk through impeding the decision-making processes. I examine the relation between CEO-CFO incentive conflict and stock returns. The analysis indicates that an investor who routinely buy firms with the least incentive conflict and shorts firms with the greatest incentive conflict between CEO and CFOs will outperform the market by 475 basis points per year. I investigate whether risk, firm performance, or market inefficiency explain the excess returns and provide evidence that shareholders demand higher returns for bearing risk associated with CEO-CFO incentive similarities. Next, I explore the impact of executive incentives on bondholder wealth through looking at bond yields. Firms compensate managers to maximize shareholder value, yet these same incentives affect bondholder risk. I investigate the relation between executive equity pay and the cost of debt. My findings indicate a “u-shaped” relation between bond yields and equity pay. These results are consistent with the notion that bondholders prefer a moderate amount of executive equity pay and above or below that level, bondholders increase yields to protect their interests. Instrumenting equity pay using CEO heritage, I find support for a curvilinear relation. These findings suggest that moderate levels of equity pay mitigate the agency costs between firm shareholders and bondholders. Finally, I study the affect of board gender diversity on CEO and director compensation. Females occupy only about 12% of director positions on corporate boards. I find that boards with more female’s onboard tend to give CEOs larger fractions of equity in their compensation packages while incentivizing directors with lower fractions of equity pay. This evidence is consistent with the notion that female board members are superior monitors yet also possess greater risk-aversion than male board members. / Business Administration/Finance

The research question on problems that involves information asymmetry has been drawing more and more attention since the past decades, and in particular, two of the pioneers Bengt Holmström and Oliver Hart) in this field won the Nobel Prize of Economics in 2016. With the emergence of information economics, accounting researchers started focusing on the information asymmetry problems, with a particular interest and emphasis on moral hazard problems, within the firm. In this essay, we intend to fill the blank in this area by investigating some specific information asymmetry problems in managerial accounting under the presence of both moral hazard and adverse selection, or moral hazard and post-contract information asymmetry, respectively. The first study analyzes the expected value of information about an agent’s type in the presence of moral hazard and adverse selection. The value of the information decreases in the variability of output and the agent’s risk aversion, two factors that are typically associated with the severity of the moral hazard problem. However, the value of the information about agent type first increases but ultimately decreases in the severity of adverse selection. The second study draws attention to the tradeoffs associated with relying on pre-contracting ability measures in the design of executive compensation schemes. We show that the more sensitive of the ability signal to ability the more weight should be placed optimally, and the more precise of the ability signal the more weight should be placed optimally, in accordance with the informativeness principal. We further prove that under a broad class of distributions a linear aggregation of multiple pieces of pre-contracting information is sufficient for contracting purposes without loss of generality. The third study investigates three mechanisms of organizational control: outcome control (contracting on the outcome), effort control (contracting on the signal of action), and clan control (employing an agent whose preferences are partially aligned with the principal’s goal through a socialization process). In doing so, we expand the standard agency framework by introducing the concept of other-regarding preference and clan control to provide new insights into organizational control design. / Business Administration/Accounting

This dissertation investigates the structure of incentive contracts in which adverse selection problems are more severe. Specifically, I examine the moderating effect of R&D intensity on the relative weights placed on signals of ability and on performance measures in executive compensation. Furthermore, I also investigate the determinants on the compensation of university presidents. I find that that more weight is placed on signals of ability in R&D intensive firms and less weight is placed on performance measures. I find that R&D intensive firms pay more to executives with technical work experience and/or relevant educational degrees. Additionally, in the context of university presidents, the positive association between organizational complexity and executive compensation is driven by the role of managerial ability rather than by effort. This result also suggests that considering measures of organizational complexity (such as firm size and diversification) as control variables in empirical studies of executive compensation is the appropriate means by which to account for the impact of organizational complexity. / Business Administration/Accounting

Prior research on intra-firm pay disparity suggests intra-firm pay disparity at various hierarchy levels affects firm performance and executive-level pay disparity is related to investment risk in the credit and the equity market. However, none of the studies examine the relationship between CEO-to-worker pay disparity and credit investment risk. The purpose of this study is to investigate the association between CEO-to-worker pay disparity on credit investors' risk assessments. Large CEO-to-worker pay disparity could suggest CEO rent extraction which increases credit risk or effective labor cost management that decreases credit risk. Overall results of this study indicate increased CEO-to-worker pay disparity is associated with a lower cost of debt (a higher probability of credit rating upgrades). This association weakens as the growth rate of average employee pay increases and is more pronounced for labor-intensive firms than for capital-intensive firms, suggesting credit investors incorporate the information about the effectiveness of labor cost management in CEO-to-worker pay disparity in their risk assessments. In addition, the negative relationship between the change in CEO-to-worker pay disparity and the change in the cost of debt is less salient when CEO compensation increases rapidly. Further analysis shows the association is attenuated by increased excessive CEO compensation. The findings indicate credit investors also consider the risk arising from CEO rent extraction when they evaluate CEO-to-worker pay disparity. / Ph. D.

In the first essay, we study mutual funds' voting on compensation-related proposals initiated by corporate management. Compared with proposals on other topics, proposals on compensation issues are more likely to be challenged by mutual funds. Consistent with active institutional influence, mutual funds are more likely to vote against management at portfolio firms that make more excess CEO pay or depict other symptoms of poor governance such as bad performance and CEO entrenchment. Both active and passive funds' votes are significant drivers of the voting outcome of a proposal. Failed proposals are associated with lower CEO pay, especially excess pay, in the following year. Say-on-pay proposals opposed by more mutual funds are also followed by lower excess CEO pay. Collectively, evidence in this paper suggests that institutions (including passive institutions) play an important role in setting CEO pay through the voting channel. The second essay examines the equity loan supply for short selling. Using detailed stock lending data, we show that active equity funds, on average, are informed, stock lenders. The stocks they lend outperform those that they do not. The stocks they recall and sell perform worse in the future than those that remain on loan. These funds avoid lending stocks when lending fees are extremely high and use the shorting market's signals to form stock-selling decisions. Our findings help explain why institutional investors lend stocks. They also highlight a new source of short-sale constraints arising from the informed loan supply. / Doctor of Philosophy / Shareholders of a firm are expected to monitor executive compensation. Among all share-holders, institutional investors such as mutual funds play an important role in setting pay practices for executives. However, do they vote on related proposals at annual meetings or simply "vote by feet"? The first essay strives to answer the question using mutual fund proposal vote records data. Our findings suggest that mutual funds can affect CEO compensation in the future by voting against management-initiated pay proposals and the effect is both statistically and economically significant. Institutional investors such as mutual funds also participate in lending business on otherwise idle shares in their portfolio. While they are often considered passive and not informed in the equity loan market, their behavior has been much less investigated. We study the extent to which mutual funds exploit information in lending their shares using the first detailed stock lending dataset obtained from SEC filings. We find that mutual funds are informed lenders and important to market efficiency.

This study investigates the effects of insider entrenchment on Chief Executive Officer (CEO) compensation in firms conducting an initial public offering (IPO). The sample comprises 220 US firms that went public between 1996 and 2002. Corporate governance choices regarding entrenchment are captured by six provisions in the corporate charter and bylaws, as well as five anti-takeover statutes, which may or may not be in effect in the state of incorporation. Firm-level items are supermajority requirements for charter amendments, bylaws amendments, and merger approvals, along with the presence or absence of a staggered board of directors, poison pills, and golden parachute agreements. The anti-takeover laws examined are Business Combination, Control Share Acquisition, Fair Price, Poison Pill Endorsement, and Constituencies Statutes. A factor analysis reveals three distinct components of entrenchment: firm- and state-level external entrenchment and firm-level internal entrenchment. External entrenchment is related to market control over management by means of corporate takeovers; internal entrenchment relates to shareholder control over management by means of their voting power. Evidence is found for a positive association between entrenchment at IPO and subsequent CEO cash and total compensation. These relationships are driven by firm-level external entrenchment. Firm-level external entrenchment is also significantly and positively associated with CEO stock-based compensation. The positive effects of entrenchment at IPO on CEO compensation appear not to be transitory and remain constant for at least five years post-IPO. Furthermore, entrenchment at IPO is shown to affect CEO pay-for-performance sensitivity. On balance, entrenchment reduces the sensitivity of CEO compensation to stock returns and returns on assets. The results of this study underscore the crucial importance of insiders' governance decisions made at the time of the IPO. Little support is found for a re-balancing of components of the CEO's compensation contract in response to entrenchment as predicted under the optimal contracting theory of compensation contracts. The findings of this study are almost entirely consistent with the managerial power theory, according to which entrenchment at IPO causes a permanent shift in bargaining power, which enables CEOs to influence compensation contracts in their favor.

A outorga de opções de compra de ações ao administrador de uma companhia é tradicionalmente vista como uma prática de governança corporativa salutar, na medida em que contribui para a superação do conflito de agência existente entre executivos e acionistas. No entanto, esta dissertação de mestrado tem como objetivo oferecer uma visão alternativa ao tema. Pretende-se demonstrar que, caso este incentivo não seja estruturado e acompanhado corretamente, o seu uso pode levar à destruição de valor da companhia. Deste modo, exploram-se, nos dois capítulos iniciais, as bases jurídicas e econômicas da concessão de opções de compra de ações. No capítulo seguinte são abordados quatro aspectos fundamentais desta questão, os quais, surpreendentemente, são ignorados pela doutrina nacional. São eles: o custo das opções de compra de ações, as limitações dos seus benefícios, os seus principais problemas e as possíveis explicações para a realização de tais outorgas. No quarto capítulo, discutem-se as falhas das estratégias legais disponíveis para o controle das distorções surgidas no contexto da outorga de opções de compra de ações. Na parte final desta dissertação, são apresentadas as conclusões sobre o tema, propondo-se que o regulamento de listagem nos segmentos de práticas de governança corporativa da BM&FBOVESPA seja alterado para contemplar regras específicas quanto à outorga de opções de compra de ações. Adicionalmente, os anexos à dissertação resumem os principais resultados de uma extensa pesquisa a respeito das características da remuneração dos administradores e dos incentivos baseados em ações adotados pelas companhias abertas brasileiras. / Granting of stock options to a companys manager is generally seen as a positive corporate governance practice as it helps to overcome the agency problem between shareholders and executives. This thesis however aims to offer an alternative approach to this subject. Its purpose is to demonstrate that, to the extent that this incentive is not properly designed and monitored, it may lead to destruction of companys value. Therefore, the first two chapters explore the legal and economical foundations of the stock options grants. The next chapter discusses four fundamental aspects of this matter, which, surprisingly enough, are ignored by the Brazilian legal literature. They are the following: the cost of granting stock options, the shortcomings of its benefits, its main problems and the plausible explanations for such grants. The flaws of the legal strategies available to control the distortions caused by stock options are discussed in the fourth chapter. In the final part of the thesis, the conclusions of this study are presented and an amendment to the corporate governance listing rules of BM&FBOVESPA is suggested, in order to address specific rules regarding stock options grants. Additionally, the schedules to this thesis summarize the main findings of an extensive research on the characteristics of executive compensation and stock-based incentives adopted by Brazilian listed companies.

Submitted by JOSIANE SANTOS DE OLIVEIRA (josianeso) on 2018-02-23T11:53:05Z No. of bitstreams: 1 Laís de Avila Gaspary_.pdf: 1449054 bytes, checksum: f96731937c9ee76bac6fb911868fda98 (MD5) / Made available in DSpace on 2018-02-23T11:53:05Z (GMT). No. of bitstreams: 1 Laís de Avila Gaspary_.pdf: 1449054 bytes, checksum: f96731937c9ee76bac6fb911868fda98 (MD5) Previous issue date: 2017-11-14 / Nenhuma / O presente trabalho tem como temática principal a análise econômica da compulsoriedade de divulgação de informações de remuneração máxima, mínima e média de executivos após o advento da Instrução CVM nº. 480. Inconformado com a obrigatoriedade de divulgar tais informações o Instituto Brasileiro de Executivos de Finanças (IBEF/RJ), representando companhias e executivos a ele filiados promoveu demanda judicial objetivando o afastamento da aplicação do subitem 13.11 do anexo 24 da Instrução CVM nº. 480. O principal argumento do IBEF/RJ era o de que a obrigatoriedade de divulgação das informações de remuneração violaria o direito a intimidade, privacidade e sigilo de dados dos executivos, bem como aumentaria os riscos à segurança dos executivos e de suas famílias. Protegidas pela liminar concedida ao IBEF/ RJ, quarenta e oito companhias abertas deixaram de divulgar as informações de remuneração dos seus executivos. Enquanto algumas companhias utilizavam-se da liminar para eximirem-se da divulgação das informações de remuneração de executivos, muitas outras já no primeiro ano de vigência da instrução passaram a divulgar as informações em cumprimento com a instrução CVM nº. 480. Através do estudo dos casos PDG REALTY S.A e BR MALLS PARTICIPAÇÕES S.A o presente trabalho teve como objetivo identificar quais as possíveis razões das companhias para o compliance ou non-compliance com a regra do subitem 13.11 da Instrução CVM nº 480. A resposta ao problema de pesquisa foi encontrada através do emprego da metodologia de estudo de caso múltiplo. Ao encontrar a resposta ao problema de pesquisa a metodologia empregada ainda chamou a atenção para o processo decisório das companhias pelo non-compliance com a regra de evidenciação. Por fim, foi possível concluir que o que deveria servir para alinhar os interesses dos executivos com aqueles eleitos pelos acionistas como prioritários em verdade tem sido utilizado como forma de expropriação dos minoritários, através da maximização da riqueza dos próprios executivos. / The main topic of this dissertation is the economic analysis of the compulsory disclosure of information on maximum, minimum and average compensation of executives after the publication of CVM (the Brazilian securities and exchange commission) Instruction nº. 480. Notwithstanding the obligation to disclose such information, the Brazilian Institute of Finance Executives (IBEF/RJ), representing companies and executives affiliated to it, filed a lawsuit seeking to waive the application of subitem 13.11 of annex 24 of CVM Instruction nº. 480. The main legal argument used by IBEF/RJ was that the mandatory disclosure of compensation information would violate executives' rights to intimacy, privacy, and data confidentiality, as well as increase safety risks to executives and their families. Protected by the injunction granted to IBEF/RJ, forty-eight publicly traded companies ceased their disclosure of executive compensation information. While some companies used the granted injunction to exempt themselves from the disclosure of executive compensation information, many other companies began to disclose such information in compliance with CVM Instruction nº. 480, already in its first year of validity. Through two cases PDG REALTY S.A and BR MALLS PARTICIPAÇES S.A or present work has as objective to identify the possible reasons of companies for compliance or non-compliance with the rule of subitem 13.11 of CVM Instruction nº. 480. The answer to the research problem will be found by using the multiple case study methodology. In finding the answer to the research problem, the employed methodology also drew attention to the decision-making process of the companies for non-compliance with the rule of evidence. Finally, it is possible to conclude that which should serve to align executives' interests with those elected by shareholders as priorities has, in fact, been used as a form of expropriation of minority shareholders by maximizing the wealth of executives themselves.

This thesis consists of three self-contained papers on defined benefit (DB) pension provision in the United Kingdom (UK). In particular, in the first paper, I examine the effect that labour market incentives, managerial incentives and the adoption of FRS17 by UK firms, have on DB plan retention decisions. In this paper, I also examine the role of insider trustees, defined as trustees that are also company executives, on the firm’s decision to keep DB plans open. I find that firms for which human capital is especially important are more likely to retain their defined benefit plans. In addition, CEO and CFO membership in the same pension plan that is provided for other employees positively influences the retention of defined benefit pension plans. Additional analysis using a sub-sample for which data on pension plan trustees are available suggests that being a CEO and a trustee increases the probability of DB plan retentions. Moreover, being a CEO/CFO trustee and a member of the DB plan offered to all employees increases the likelihood of DB plan retention. However, I do not find any evidence that voluntary adoption of FRS 17 influences DB plan retention. In addition, I find that insider-trustees have a positive influence on the decision to maintain DB plans, especially when they are members of these plans. In the second paper, I look at the effect of DB plan retentions and executive membership in them, on corporate credit ratings and the investment and dividend decisions. Empirical findings suggest that firms which continue to sponsor DB plans are more likely to have lower credit ratings which are exacerbated when these plans are underfunded. Despite the above effect however, I find that if the CEO is a member of the DB plan, it positively affects credit ratings. In addition, I find some evidence that the participation of CEOs in the main DB plans in conjunction with overfunded pension plans, negatively affect investment decisions when these schemes remain open. I do not find any association between CEOs membership in the main DB plan and dividend payments which may be explained by the market signalling effects of dividends. Finally, in the third paper, I provide a thorough analysis of the pension buy-in and buy-out market in the UK, and I empirically examine the determinants of such transactions from a firm and plan perspective. I find that firms that implement buy-ins have larger and more funded pension plans, are more profitable and have higher union densities. Moreover, firms that complete buy-outs have larger pension plans and allocate less pension assets in equity. Moreover, the number of employees is negatively associated with both transactions implying it is costlier for firms to conduct either a buy-in or buy-out transaction. While union density is positively associated with buy-ins, it has a negative effect on the likelihood of buy-outs suggesting that unions support buy-in but not buy-out transactions. This may be potentially explained by the fact that the latter are associated with with plan winding-ups.

This dissertation includes two essays that examine mergers and acquisitions. In the first essay we examine how pay-for-performance influences the quality of merger decisions before and after Sarbanes-Oxley (SOX). Pay-for performance has a significant positive effect on acquirer returns of 0.9% pre-SOX and 1.1% post-SOX around the three day event window. Bidders with high pay-for-performance pay a 23.3% lower merger premium in listed target acquisitions. The positive effect of pay-for-performance is more important for public target acquisitions overall, for small acquirers pre-SOX, and for large acquirers post-SOX. In the long-run, bidders with high pre-merger pay-for-performance experience 27.6% higher returns after controlling for other merger characteristic. In the second essay we investigate the value of customer/supplier relationships in mergers acquisitions. The findings show that targets (suppliers) with strong customer/supplier relationships obtain higher abnormal returns and higher merger premiums compared to targets with weak customer/supplier relationships. However, targets that have a strong connection with a customer have lower odds of being acquired. Acquirers that purchase targets with strong customer/supplier relationships have negative long-run abnormal returns, suggesting that the acquirers may have overpaid for such targets. Implications of customer/supplier relationships on customers, rivals and competing rivals are presented.