Executive compensation and its potential importance in aligning shareholder and management interests has been an extensively researched area within corporate finance. We study executive compensation while addressing several unresolved issues in the literature. In essay one, we examine CEO compensation following spin-offs. We find that CEOs are rewarded for undertaking a spin-off. Change in compensation for CEOs of spin-off firms following spin-offs is significantly higher than that for matching firms. We also find that the increase in compensation following spin-off is negatively associated with the change in firm size following the spin-off. Unlike mergers and acquisitions through which increases in executive compensation seem to be more related to size than performance, we show that CEO compensation increases following spin-offs even though spin-offs reduce firm size. In the second essay, we study changes in CEO salaries and their relation to firm performance. We document that changes in CEO salaries, which are a more permanent form of compensation change, are related to long term measures of performance. We find that CEO salaries change much more in relation to long term stock returns than short term stock returns. We also study the asymmetry in the relation between salary changes and firm performance. We find that while short term negative returns are related to changes in CEO salaries; only long term positive returns are significantly associated with CEO salary changes. This asymmetric relation is also present between total CEO compensation changes and stock returns. In essay three, we examine managerial decision horizons for target and acquirer firms in mergers and acquisitions. We find that acquirer CEOs have longer decision horizons than target firm CEOs in stock financed mergers. Acquirer CEOs in cash financed mergers and acquisitions also have longer decision horizons than target CEOs. Acquirer CEOs in both stock and cash financed mergers have significantly higher proportions of equity based compensation and significantly lower proportions of cash based compensation than target CEOs. In logistic regressions, measures of decision horizons for target and acquirer CEOs are not significantly related to the odds of stock financing in mergers and acquisitions. Our results do not offer strong support to the implications from the Shleifer and Vishny theory on the rationale for stock financed acquisitions.

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The first part of the dissertation investigates cost experience in the US life and health insurance industry over the period 1998-2012. We generally test the difference in expenses among different distribution systems, which mainly consists of independent agency, broker, career agency, exclusive agency, and direct writing. We check to see if cost, revenue and profit efficiency differences are associated with different distribution methods. Cost, revenue, and profit efficiencies are estimated by Data Envelopment Analysis. Unlike the results in the property and liability insurance industry, the cost difference is insignificant among distribution systems. Results on cost efficiency and revenue efficiency support the market imperfection hypothesis, which says that the market imperfections such as entry barriers, price regulation, or search costs cause the coexistence of different distribution systems. The second part of the dissertation examines the relationship between mergers and acquisitions (M&As), and underwriting cycles in the P-L insurance industry. In a soft market, capital is relatively high. This leads to an increase in the number of M&A transactions and the probability that managers conduct non-value-increasing M&As. We test this proposition by analyzing the associations between volumes of M&A deals, and returns associated with M&As and underwriting cycle. The results show that the numbers of M&As are negatively related with the premium rate changes and positively related with changes in the combined ratio. We also find that the cumulative abnormal returns around the announcement date of M&As are smaller for the shareholders of insurer acquirers in a soft market. Even more, we find that the market reaction of M&As is less sensitive to agency problems in a hard market than in a soft market. / Business Administration/Risk Management and Insurance

The first part of the dissertation aims to determine whether and how variances in reinsurance relationships impact insurers' financial performance during the sample period of 2002-2012. Such impact on insurers' financial performance is measured by accounting measurements of ROA and ROE and by the efficiency scores (cost, revenue, and profit) estimated using data envelopment analysis (DEA). This essay analyzes how the usage of captive reinsurance affects life insurers’ firm performance using multivariate regression model. Results show that firm performance is negatively related to captive reinsurance arrangements. The second essay analyzes the value effects of mergers and acquisitions (M&As) in the global insurance industry by conducting an event study of M&A transactions that occurred during the period of 1990-2014, including two M&A waves before the financial crisis and the M&A activities after it. Our results show that (1) M&As are value-enhancing for both acquirers and targets over the whole sample period; (2) for acquirers, within-border transactions are more likely to be value-enhancing, while for targets, both cross-border and within-border transactions are value-enhancing; and (3) for acquirers, the cross-industry M&As are more likely to be value-enhancing, while for targets both cross- and within- border M&As are value-enhancing. / Business Administration/Risk Management and Insurance

The purpose of this dissertation is to introduce and empirically test a new theoretical perspective for assessing board effectiveness. Although the ability-motivation models provide a fruitful foundation in developing the characteristics that influence directors' job effectiveness, there are limitations this these models. First, the directors' ability and motivation dimensions are not clear, as existing conceptualizations are fungible and provide little clarity for theoretical and empirical research. Second, the ability-motivation models overlook several characteristics that are known to influence job performance but do not fit within the current dimensions. Finally, the current studies implicitly assume that all directors on the board have the same opportunity to monitor and advise in every domain. Therefore, I integrate the corporate governance literature on board effectiveness and the social psychology literature on job performance and propose that boards' effectiveness is a function of individual directors' capacity, engagement, and opportunity. This dissertation offers several contributions. First, I propose a theoretical model that illuminates and extends the core dimensions (i.e., capacity, engagement, and opportunity) of directors' effectiveness. The core dimensions of the model in my dissertation provide a much-needed conceptual clarity and coherence to the constructs that influence directors' effectiveness, which supports the development of stronger theory of directors' effectiveness. Second, by exploring the role of opportunity, I challenge one major assumption of the corporate governance field that all directors on the board have the same responsibility to monitor and advise in all domains. Third, the dissertation begins to shed light to the 'black box' of boards of directors by exploring how boards might enable directors to exert their full potential regarding their board functions. / Doctor of Philosophy / Board of directors are considered by practitioners as one of the most important corporate governance mechanisms to monitor and advise the CEO and other executives of the firm. Nonetheless, boards often fail in fulfilling these roles. This is exemplified by the constant news regarding organization misconduct and strategic failures. Therefore, the question of when and how directors can effectively perform their board's duties remain answered. In my dissertation I propose that directors must have high levels of capacity, engagement, and opportunity at the same time in order to monitor and advise effectively. Specifically, I emphasize the importance of appropriately matching directors to a position in which they can leverage their capacity and engagement. Boards are pressured to constantly evaluate their capabilities; thus, boards might use the insights of this study to appropriately evaluate and adjust the responsibilities of their directors. Furthermore, investors might use our proposed model to externally evaluate if the boards of the firms in which they are investing are structured in a way that they can mitigate misconduct which could greatly impact their investment outcome. Finally, policy makers can rely on these criteria (capacity-engagement-opportunity) to create board regulations to improve monitoring effectiveness.