This thesis consists of three essays and studies CEO compensation and mergers and acquisitions in empirical corporate finance. The first essay is sole-authored and is titled ‘The Effect of Social Interactions on Executive Compensation.' The second essay ‘The Role of Investment Banker Directors in M &A: Can Experts Help?' is a joint work with Qianqian Huang, Erik Lie, and Ke Yang. The third essay is titled ‘The Strategic Use of CEO Compensation in Labor Contract Negotiations' and is coauthored with Erik Lie and Tingting Que. In the first essay, I examine how executives' social interactions affect their compensation. Using the social networks among 2,936 chief executive officers (CEOs) during 1999-2008, I report that the compensation of a pair of socially connected CEOs is significantly more similar than that of a pair of non-connected CEOs. I further find that CEO compensation responds to a peer's change in pay caused by industry performance, especially if that change in pay is positive rather than negative and when the firm is suffering from weak corporate governance. I interpret these results as consistent with the notion that relative earnings concerns within social networks affect negotiations about compensation. Finally, I find that the past practice of backdating stock option grants spread across social networks, suggesting that social networks serve as a conduit for interpersonal information flow about compensation practices. Taken together, I show that CEOs' peer interactions have a substantial impact on executive pay. In the second essay, we examine how directors with investment banking experience affect firms' acquisition behavior. We find that firms have a higher probability of acquisition when an investment banker is a director. Furthermore, acquirers with investment banker directors on the board have significantly higher announcement returns, especially if the deal is relatively large and the bankers' experience and/or network is current. We also find evidence that investment banker directors help reduce the takeover premium and advisory fees paid to outside consultants. Finally, the presence of investment banker directors is positively related to long-run operating and stock performance. Lastly, in the third essay, we study whether firms strategically alter CEO compensation to improve their bargaining position with labor unions. We conjecture that (i) firms in heavily unionized industries offer lower compensation packages to their CEOs than do their non-union counterparts, (ii) unionized firms temporarily curtail CEO compensation before union contract negotiations, and (iii) the curtailment in compensation is most pronounced for option grants due to their discretionary nature. Our results support these conjectures. We also find that CEOs are more likely to sacrifice compensation if they hold a relatively large stake in the company whose value depends on the contract negotiations. Finally, we report evidence that curtailing CEO compensation helps reduce the negotiated salary growth.

This thesis consists of three essays and studies CEO compensation, asset sales and takeovers and investment under uncertainty in empirical corporate finance. The first essay is a joint work with Qianqian Huang, Feng Jiang and Erik lie, titled `The effect of labor unions on CEO compensation'. The second essay `. Union Concessions following Asset Sales and Takeovers' is a joint work with Erik Lie. The third essay is titled `The Effect of Systematic and Idiosyncratic Risk on Investment and R&D' and is sole-authored. In the first essay, we document evidence that labor unions compel firms to curtail CEO compensation. First, we find that firms with strong unions pay their CEOs less. Further, firms curb CEO compensation, especially the part that is discretionary, prior to union contract negotiations. Finally, we report that curbing CEO compensation mitigates the chance of a labor strike, thus providing a rationale for firms to pay CEOs less when facing strong unions. In the second essay, we document that the likelihood of asset sales increases with union wages. Furthermore, the acquiring firms gain significant concessions from the incumbent union following asset sales. Finally, the anticipation of union concessions helps explain the excess stock returns around asset sale announcements. We find no comparable effects for takeovers. We conclude that asset sales, but not takeovers, are partially motivated by the potential to extract concessions from unions. Finally, in the third essay, in an attempt to shed some light on the puzzling positive sensitivity of investment to systematic volatility documented in Panousi and Papanikolaou (2012), we decompose systematic volatility into a firm's systematic risk exposure (beta) as well as the market and industry portfolio volatility. Surprisingly, we find a positive response of investment to a firm's systematic risk exposure. R&D expenditure is employed as an alternative form of investment. Our results show that idiosyncratic risk actually encourages firms to engage in R&D spending, in contrast with its depressing effect on capital expenditure; whereas systematic volatility depresses R&D in contrast with the positive sensitivity of capital expenditure to systematic volatility.

Previous literature have documented that the independent directors play a crucial goal in corporate governance but the research on the firm value and board independence remains inconclusive. In my dissertation, I examine the impact of independent directors' geographic proximity to corporate headquarters on the effectiveness of corporate boards and the motivations of board directors. Using a large sample of directors trading, I show that independent directors who live close to headquarters ("local director") earn higher abnormal returns on their trades than other directors, and that this advantage is stronger in small firms. Further, I find an inverse relationship between the number of local independent directors on the board and firm value. Companies with fewer local independent directors also have higher ROA ratios, lower abnormal CEO compensations, and higher CEO incentive compensations. Collectively, the findings suggest that local independent directors are more informed but less effective monitors. I also provided evidence that firms with a higher proportion of directors' incentive compensation are more likely to manage earnings. Directors are more likely to exercise options in the year following the firms' earnings management being in the top tercile of the sample. The results are robust after controlling for self-selection bias. Taken together, the evidence suggests that director incentive pay is more likely to align directors' interest with the CEO's, rather than to induce the directors to act in the best interest of the shareholders.

In the media today, remuneration programs to CEO’s are frequently discussed. Media are usually focusing on the large amounts paid out rather than why the companies use the programs. The purpose of this thesis is to examine whether the conflict of interest presented by the Principal Agent Theory is affected by a CEO remuneration program. To reach the purpose, an inductive method has been used. Questionnaires have been send out by e-mail and phone interviews have been carried out with two sample groups, one with remuneration programs, and one that do not use remuneration programs. The main theoretical framework used is Principal Agent Theory. With the help of other supporting and complementing theories the authors have been able to analyze the empirical findings gathered, and come to a conclusion. The authors were able to come to the conclusion that an effective remuneration program can to some extent steer a CEO’s behavior in the short term, and thereby affect the conflict of interest going on between principals and agents according to Principal Agent Theory. At the same time the authors have come to the conclusion that it is more difficult to make any clear connections between remuneration programs and being able to steer CEO’s behavior in the long run. However the long run reason for a remuneration program is to create a loyalty between the owners and managers. It has also been seen that companies without a remuneration plan tend to apply a Stewardship relationship rather than a principal agent relationship, and are thereby managing to decrease the conflict of interest between the two parties. / Bonusprogram är ofta diskuterade i media idag. Fokus ligger oftare på storleken på beloppen som betalas ut snarare än varför företagen väljer att använda sig av programmen. Syftet med den här uppsatsen är att undersöka huruvida intressekonflikten presenterad i Principal Agent Teori påverkas av ett bonusprogram till VD. För att uppnå syftet har en induktiv metod används. Frågeformulär har skickats ut via e-post och telefonintervjuer har genomförts med två olika urvalsgrupper, en där företagen använder sig av bonusprogram till sin VD och en där företagen inte använder sig av bonusprogram till sin VD. Den huvudsakliga teorin som använts är Principal Agent Teori. Med hjälp av andra stödjande samt kompletterande teorier har författarna kunnat analysera det empiriska materialet som samlats in och på så sätt lyckats komma fram till en slutsats. Författarna kom fram till slutsatsen att ett effektivt bonusprogram kan till viss del styra en VD:s beteende på kortsikt, och på så sätt påverka den intressekonflikt som pågår mellan principal och agent enligt Principal Agent Teorin. Samtidigt har författarna kommit fram till slutsatsen att det är svårare att se något klart samband mellan bonusprogram och möjligheten att styra en VD:s beteende på långsikt. En annan anledning för att använda ett bonusprogram är att skapa en lojalitet mellan ägare och chefer på långsikt. Det har även framkommit att företag som inte använder sig av ett bonussystem tenderar att ha en Stewardship relation snarare än en principal agent relation mellan ägaren och VD. På så sätt lyckas dessa företag minska intressekonflikten mellan de två parterna.

Essay 1: To delegate or not to delegate to stock markets: The case of boards with related industry expertise Abstract: I examine the extent to which boards with expertise in related product markets, i.e., downstream (customer) or upstream (supplier) industries, delegate their monitoring and advisory functions to stock markets. Directors from related industries (DRIs) are argued to have greater access to information about the input and output product markets of the firm. This, in turn, is predicted to reduce the reliance on stock-based compensation, a costly mechanism, particularly for firms that depend more on information about product markets and whose stock prices are not very informative about product markets. The evidence documented in this paper is largely consistent with these predictions. A number of additional tests suggest that this evidence is not likely to be explained by the potential conflict of interests between the firm’s stockholders and DRIs. Hence, I conclude that boards with related industry expertise delegate to stock markets to an optimally lesser extent due to their informational advantages. Essay 2: Stock-based CEO compensation following conglomerate acquisitions Abstract: I examine how stock-based incentive compensation for the CEO is designed following corporate acquisitions conditional on the economic nature of the acquisition. Large acquisitions represent significant changes in the economic environment of the firm. Furthermore, these changes are more likely to occur with conglomerate acquisitions. Accordingly, implications of the two mainstream theories of incentive compensation, i.e., efficient contracting theory and agency theory, are tested separately for conglomerate acquisitions. The empirical tests generally show that stock-based compensation is employed more intensely after conglomerate acquisitions than otherwise. Overall, the results documented in this paper seem consistent with the notion that greater economic uncertainties that are likely to follow conglomerate acquisitions induce the board to rely more heavily on stock-based incentives, an external monitoring mechanism.

Background: A debated subject in today’s society is CEO compensation. Companies which give the CEO compensation mean that it motivates them to maximize the company’s return. The compensations are based on various types of variables, such as financial measures and financial ratio. Despite the various reasons given by the company as to why high compensations are paid out and what it is based on, the Media, shareholders and other privies have questioned this phenomenon. This is because most of the companies that use this type of compensation system show a financial downturn and negative financial ratio. Purpose: The purpose with this thesis is by evaluating annual report’s examining the relation between bonus compensations and company size. Also, to revise if there is a relation between profitability and dividends of the CEO compensation for the companies that has the aim for compensation. Method: This thesis is based on a quantitative study where the empiric consists of secondary data collected from annual reports for companies listed on the stock exchange. Empirical: The empirical data is presented in tables and graphs. The result shows that some companies give compensation despite negative financial ratio. Conclusion: The study shows that companies that are most prone to the compensation payout to the CEO are mostly larger companies, their numbers regarding compensation exceeds substantially the dividends shown in the medium-sized businesses. The study also shows that the relationship between compensation and profitability varies between the companies which are analyzed in the study. It has been difficult to draw a clear parallel between profitability and dividends, since the majority of the companies have negative financial ratio but have a dividend that can be compared to companies that have profitable numbers.

<p>In the media today, remuneration programs to CEO’s are frequently discussed. Media are usually focusing on the large amounts paid out rather than why the companies use the programs. The purpose of this thesis is to examine whether the conflict of interest presented by the Principal Agent Theory is affected by a CEO remuneration program.</p><p>To reach the purpose, an inductive method has been used. Questionnaires have been send out by e-mail and phone interviews have been carried out with two sample groups, one with remuneration programs, and one that do not use remuneration programs.</p><p>The main theoretical framework used is Principal Agent Theory. With the help of other supporting and complementing theories the authors have been able to analyze the empirical findings gathered, and come to a conclusion. The authors were able to come to the conclusion that an effective remuneration program can to some extent steer a CEO’s behavior in the short term, and thereby affect the conflict of interest going on between principals and agents according to Principal Agent Theory. At the same time the authors have come to the conclusion that it is more difficult to make any clear connections between remuneration programs and being able to steer CEO’s behavior in the long run. However the long run reason for a remuneration program is to create a loyalty between the owners and managers. It has also been seen that companies without a remuneration plan tend to apply a Stewardship relationship rather than a principal agent relationship, and are thereby managing to decrease the conflict of interest between the two parties.</p> / <p>Bonusprogram är ofta diskuterade i media idag. Fokus ligger oftare på storleken på beloppen som betalas ut snarare än varför företagen väljer att använda sig av programmen. Syftet med den här uppsatsen är att undersöka huruvida intressekonflikten presenterad i Principal Agent Teori påverkas av ett bonusprogram till VD.</p><p>För att uppnå syftet har en induktiv metod används. Frågeformulär har skickats ut via e-post och telefonintervjuer har genomförts med två olika urvalsgrupper, en där företagen använder sig av bonusprogram till sin VD och en där företagen inte använder sig av bonusprogram till sin VD.</p><p>Den huvudsakliga teorin som använts är Principal Agent Teori. Med hjälp av andra stödjande samt kompletterande teorier har författarna kunnat analysera det empiriska materialet som samlats in och på så sätt lyckats komma fram till en slutsats.</p><p>Författarna kom fram till slutsatsen att ett effektivt bonusprogram kan till viss del styra en VD:s beteende på kortsikt, och på så sätt påverka den intressekonflikt som pågår mellan principal och agent enligt Principal Agent Teorin. Samtidigt har författarna kommit fram till slutsatsen att det är svårare att se något klart samband mellan bonusprogram och möjligheten att styra en VD:s beteende på långsikt. En annan anledning för att använda ett bonusprogram är att skapa en lojalitet mellan ägare och chefer på långsikt. Det har även framkommit att företag som inte använder sig av ett bonussystem tenderar att ha en Stewardship relation snarare än en principal agent relation mellan ägaren och VD. På så sätt lyckas dessa företag minska intressekonflikten mellan de två parterna.</p>

Chief Executive Officers (CEO) remuneration has been a hot topic the last couple of years and has brought a great amount of attention in the media, when some companies have increased the CEO’s compensation even though the firm have been reporting lower earnings. Bonus systems have recently become more frequent to increase CEOs incentives, but have also been a disputed subject since the financial crisis in 2008. The aim of this thesis is to study the relation between CEO compensation and companies’ size as well as performance. The study extends over a four-year period, from 2007 to 2010, comprising the companies within the finance and real estate industry listed under large-, mid and small cap on NASDAQ OMX Stockholm. A four-year period from 2000 to 2003 and a  three-year period after the financial crisis from 2011 to 2013 is analyzed and taken into account in the study to get a deeper understanding of how the compensation has varied over time. The study takes a quantitative approach using secondary data from the companies’ annual reports. A pooled regression analysis is used as the statistical method where we are able to take multiple companies into account over several periods. The empirical results find that there is no significant relation between CEO compensation and firm performance. The study does however show a strong positive relation with market capitalization, suggesting that the companies’ size have a great effect on the CEO compensation.

This dissertation is a series of study on CEO turnover, succession, and compensation, which consists of three essays. In essay 1, I investigate how the Sarbanes-Oxley Act (SOX) affects CEO tenure and the characteristics of CEO turnover. I do not find a significant relation between financial reporting and CEO turnover even though SOX enforces accurate financial reporting and personal responsibilities. However, I find SOX affects CEO turnover via the changes to corporate boards. I provide some evidence supporting the idea that intensified monitoring significantly reduces CEO tenure. Specifically, I find SOX significantly affects the relation between CEO tenure and the independence of the board. I find that the likelihood of forced CEO turnover is higher in the post-SOX period. I also document that intensified monitoring increases the likelihood of forced turnover, specifically, I find CEO power concentration, institutional ownership, negative news, and shareholder governance proposals significantly affect the odds of forced turnover. I also provide some evidence supporting the hypothesis that firm performance is inversely related to forced CEO turnover. I document that the average number of audit committee meetings significantly increased in the post-SOX period, and the interaction between the number of audit committee meetings and firm performance significantly increase the likelihood of forced CEO turnover. Overall, the results support the notion that SOX affects boards' decisions on CEO turnover. I do not find that the proportion of outside directors significantly affects the odds ratio of forced turnover, indicating outside dominated boards may not be effective in removing CEOs. Managerial discretion defines the working environment of a manager and could potentially affect a board's choice of a successor CEO. In essay 2, I hypothesize that boards tend to appoint younger (older) CEOs in firms with high (low) managerial discretion. I further propose that the relation between managerial discretion and successor CEO age may be moderated by the age of board members, the origin of the successor, and the successor's designated heir status. Using a sample of 629 successions occurring between 1994 and 2005, I find empirical evidence that supports my first hypothesis for the total sample and the sample of successions with voluntary turnover. Board age, successor origin, and the successor's designated heir status do not moderate the results for the total sample. However, I find that board member age and designated heir status moderate the relation between managerial discretion and CEO age following forced turnover. Following voluntary turnover, successor origin and designated heir status moderate the result. The above mentioned three board and CEO characteristics may either strengthen or weaken the link between managerial discretion and CEO age depending on how the incumbent CEO leaves the CEO position. In addition, several other factors also statistically affect boards' decisions regarding CEO age, including governance, CEO board tenure, and titles held by the successor. In essay 3, I examine the role of managerial discretion in setting CEO pay at succession. Using a sample of 656 successions from 1994-2005, I provide evidence that a successor CEO's pay level is positively and significantly associated with the level of managerial discretion. However, outside succession moderates the link between managerial discretion and pay level. I further find that the moderating effect of a successor's origin is contingent upon the bargaining power of the board of directors for the total and forced turnover samples. As for the pay structure of a successor, the results of the total sample and forced turnover subsample provide evidence that managerial discretion positively relates to the proportion of risk-based pay and outside succession has a moderating effect on this relation; and the moderating effect depends on the board bargaining power. As for the voluntary turnover sample, the pay structure of the new CEO is mainly determined by the pay structure of the predecessor, firm performance, and the board bargaining power. This study enriches existing research on managerial discretion and succession by linking CEO bargaining power at succession with the theory of managerial discretion.

Society's awareness of the importance of environmental-, social- and economic issues has increased over the last decades. This increased interest has led to the development of the Corporate Social Responsibility concept (CSR) in which companies actively work simultaneously with environmental, social and economic issues that extend beyond what is legally required by these companies in order to achieve a more sustainable society. As the interest in CSR has increased, a debate whether CSR is value-creating or should be considered an agency cost has arisen. To approach this question previous researches have used the CEO compensation to examine if the engagement in CSR actually is an agency cost or a value creating activity and found that agency costs can be mitigated by tying incentives to performance. Based on these assumptions this study will examine the link between CSR and agency costs using the existence of a CSR related compensation incentives for CEOs related agency costs. This study is characterized to be positivistic and within the field of positive accounting research as it has deductive approach in which hypotheses are formulated that this study intends to test which are based on what fundamental economic theories and previous research have found that may affect agency costs. The empirical data are manually collected from companies’ on NasdaqOMX Stockholm 2016 annual reports followed by an analysis of the data using univariate t-test and multiple regressions in order to relate these findings to previous research. This study finds no direct evidence that CEO compensation incentives related to CSR affect agency costs which means that we have not closed the ongoing debate whether CSR engagement is creating shareholder value or should be considered an agency cost. Nonetheless, the results show indications that agency costs are higher for companies that use CEO compensation incentives related to CSR which indicates that CSR is not beneficial to shareholders but should instead be regarded as an agency cost at the expense of shareholders. The result also indicates that a positive accounting research is not particularly useful on a small stock market with reliable results because the findings can not be generalized in a broader perspective