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.

The first essay analyzes mutual funds proxy voting records on shareholder proposals. The results indicate that mutual funds support shareholder proposals and vote against management for proposals that are likely to increase shareholders wealth and rights, in firms with weaker external monitoring mechanisms, in firms with entrenched management, and when funds have longer investment horizon. Mutual funds mostly take management sides on executive compensation related proposals, when they have higher ownership concentration, and when they belong to bigger fund families. The results further indicate that there is a positive reputational effect for the funds undertaking a monitoring role. Moreover, mutual funds reduce holdings when they disapprove of managements policy, but before doing so they take on an activist role by supporting shareholder proposals. The second essay investigates institutional investors trading behavior of acquiring firm stocks surrounding merger activities. We label investment companies and independent investment advisors as active institutions and banks, nonbank trusts and insurance companies as passive institutions. We find active institutions increase holdings of acquiring firm stocks for mergers with higher wealth implications. However, active institutions overreact to stock mergers at the announcement, which they appear to correct at the resolution quarter of the merger. The trading behavior of passive institutions suggests that these institutions disregard the market response of merger announcement in trading acquiring firm stocks at the announcement quarter. The passive institutions gradually update their beliefs and trade on the basis of merger wealth effect at the resolution quarter. The third essay examines relation between executive compensation structure with the existing level and changes of takeover defense mechanisms of firms. According to managerial entrenchment hypothesis, higher managerial power from adoption of takeover defense mechanisms would lead to generating higher rents for executives. Efficient contracting hypothesis argue that higher anti-takeover provisions would contribute in achieving efficient contracting by deferring compensation into the future due to the low possibility of hostile takeover. The results support managerial entrenchment hypothesis with regard to existing level of takeover defense mechanisms. With regard to changes in anti-takeover provisions, the existing level of managerial power influence the future pay structure.

In order to maximize shareholder value, firms attempt to align the incentives of the executives with those of the shareholders by giving them equity as a portion of their compensation package. The terms associated with this equity compensation forces the executives to hold undiversified portfolios, resulting in a sizeable deadweight loss. This paper uses the formula developed by Meulbroek (2001)1 to calculate the dollar value of this deadweight loss, in order to quantify the costs associated with equity-based compensation. We find that the 56 executives in our data set have a combined deadweight loss of $70 billion, and that on average they are losing $1.25 billion each. These results raise the question of whether the incentive alignment is worth the large costs associated with it, and why firms continue to use equity as a form of compensation.

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 GISELLE CILAINE ILCHECHEN COELHO (gisellecoelho@bb.com.br) on 2018-10-21T22:06:28Z No. of bitstreams: 1 Dissertacao_GiselleCoelho_Aprovada_10_10_18.pdf: 834725 bytes, checksum: 0d6e8eaece862792245038faef493553 (MD5) / Approved for entry into archive by Janete de Oliveira Feitosa (janete.feitosa@fgv.br) on 2018-10-24T12:31:04Z (GMT) No. of bitstreams: 1 Dissertacao_GiselleCoelho_Aprovada_10_10_18.pdf: 834725 bytes, checksum: 0d6e8eaece862792245038faef493553 (MD5) / Made available in DSpace on 2018-10-29T13:36:17Z (GMT). No. of bitstreams: 1 Dissertacao_GiselleCoelho_Aprovada_10_10_18.pdf: 834725 bytes, checksum: 0d6e8eaece862792245038faef493553 (MD5) Previous issue date: 2018-10-10 / Objetivo – Este estudo pretende investigar o efeito da qualidade das práticas de governança sobre as estruturas de remuneração executiva. Metodologia – Para atingir os objetivos propostos foi realizado um estudo quantitativo, fundamentado em procedimentos estatísticos como testes das hipóteses, por meio de modelo de regressão linear múltipla. A abrangência da amostra, 174 empresas, e a utilização de variáveis de controle e a transformação logarítmica de algumas variáveis, possibilitaram modelos estatisticamente significantes e com bons níveis de capacidade preditiva. Resultados – Foi demonstrado que a qualidade das boas práticas de governança corporativa não gera influência sobre a remuneração executiva, bem como sobre o CEO pay slice. No entanto, há evidências de que o efeito das boas práticas de governança corporativa reduz o conformity gap e, portanto, possibilita maior aderência às boas práticas de remuneração executiva. Limitações – A principal limitação da pesquisa deve-se à análise de apenas um ano, podendo trazer efeitos sazonais como o desligamento de executivos. Outro ponto importante é que inúmeras empresas não forneceram as informações de remuneração de seus executivos, estando amparadas, naquele ano, pelo mandado de segurança obtida pelo IBEF, abrangendo cerca de 19% das empresas da amostra, podendo gerar algum tipo de viés nos resultados. Contribuições práticas – A partir dos resultados, conclui-se que no Brasil as estruturas de governança não geram influência sobre as práticas de remuneração, no entanto, o incentivo à aderência às boas práticas deve estar sempre presente como forma de reduzir o conflito de agência. Contribuições acadêmicas – Este estudo contribui para a pesquisa de um conceito pouco conhecido no Brasil, conformity gap, demonstrando estatisticamente que as empresas mais maduras em governança corporativa possuem maior conformidade às boas práticas de remuneração executiva. Originalidade – Conforme observou-se em uma pesquisa prévia acerca do tema, este é o primeiro estudo sobre remuneração executiva que apresenta o efeito da qualidade das práticas de governança sobre a remuneração executiva, com a utilização de expressões pouco conhecidas no Brasil como variável dependente, conformity gap e com o CEO pay slice. / Purpose – This study intends to investigate the effect of quality of governance practices on structure of executive compensation. Design/Methodology – In order to reach the proposed objectives, a quantitative study was carried out, based on statistical procedures as hypothesis tests, using a multiple linear regression model. The sample coverage, 174 companies, and the use of control variables and the logarithmic transformation of some variables, allowed for statistically significant models with good levels of predictive capacity. Findings – It has been demonstrated that the quality of good corporate governance practices does not generate influence on executive compensation, as well as CEO pay slice. However, there is evidence that the effect of good corporate governance practices reduces the conformity gap, thus, it allows greater adherence to good executive remuneration practices. Research limitations – The main limitation of the research is due to the analysis of only one year and can have seasonal effects such as the dismissal of executives. Another important point is that numerous companies didn’t provide the compensation information of their executives, being supported in that year by the security order obtained by the IBEF, covering about 19% of the companies in the sample and may generate some type of bias in the results. Practical Implications – Based on the results, it can be concluded that in Brazil, governance structures do not influence remuneration practices, however, encouraging adherence to good practices should always be present as a way to reduce agency conflict. Academic Implications – This study contributes to the research of the little known concept in Brazil, conformity gap, statistically demonstrating that more mature in corporate governance have greater compliance with good executive remuneration practices. Originality – As noted in a previous research, this is the first study on executive compensation that presents the effect of the quality of governance practices on executive compensation, using the expression little known in Brazil as a dependent variable, conformity gap and with CEO pay slice.

Made available in DSpace on 2016-03-15T19:31:05Z (GMT). No. of bitstreams: 1 Patricia Amaral Merofa.pdf: 2153805 bytes, checksum: d2abcf4aa1bee3746d766d1d0624bdd1 (MD5) Previous issue date: 2014-11-04 / Fundo Mackenzie de Pesquisa / The purpose of this work is to investigate the relationship between executive compensation and corporate debt in the Brazilian market. The research is focused on interactions between capital structure and compensation in the Brazilian public companies listed on the BM&FBovespa, particularly when they use debt as a disciplining factor on the behavior of managers to mitigate conflicts of interest between managers and shareholders. The sample of 234 companies and the information about variable compensation were collected from the Formulário de Referência, in subsection on remuneration of executive officers. Using panel data for the period from 2009 to 2012, this empirical study describe the effects that the variables have on companies debt level. The results confirm the negative relationship between debt and executive compensation. / Este trabalho se desenvolveu com o propósito de investigar a relação entre a remuneração dos executivos e o endividamento das empresas, no contexto do mercado brasileiro. O foco da pesquisa é explorar se as empresas brasileiras de capital aberto listadas na BMF&Bovespa utilizam a dívida como elemento disciplinador sobre o comportamento dos gestores para mitigar os conflitos de interesse entre gestores e acionistas. A amostra foi de 234 empresas, as informações sobre remuneração variável foram coletadas do Formulário de Referência, no subitem sobre remuneração dos diretores estatutários. Para testar a hipótese da relação negativa entre o endividamento e a remuneração variável, os dados foram tratados pelo método de painel de dados sob a técnica de mínimos quadrados generalizados por efeitos fixos e, também, por efeitos aleatórios, no período entre 2009 e 2012. Os resultados alcançados confirmam a hipótese de pesquisa, corroborando a perspectiva de que os compromissos da dívida podem alinhar os interesses entre acionistas e gestores.

Executive compensation and its issues are a very sensitive subject, to be taken with apinch of salt, but it is above all a fascinating subject, which deserves a more globalunderstanding from people. Our study thus aims to determine to what extent executivecompensation and its structure, which may seem complex at first glance, play a role inthe risk aversion of executives. Our study demonstrates that there are more predominantexternal factors than compensation that influence an executive's risk aversion.Previous literature contains and exposes a large theoretical framework in our researcharea about risk aversion, and some factors that could have consequences on it. However,it has never been estimated and conducted through the interviews of people that candescribe the phenomena they have to deal with on a daily basis: executives andCompensation & Benefits Specialists. The emphasis on the practical point of view theycould provide was a key point of our approach.This thesis was directed with a qualitative study to understand perception and explainingfactors on the value of risk aversion by top managers. The semi-interviews completedgave data from various points of view in terms of roles in the company, sector of activityor country of the firm. Established from our review of previous research, the interviewguide evoked seven main themes to enable us to answer our research question.Literature search permitted us to highlight how risk aversion could be seen as a parameterthat needed leverage from the principal, rooting on the agency theory and its solution,with the optimal contract. We identified factors that could impact the risk aversion ofmanagers on top of the executive compensation. These four factors: innovation,information sharing, temporality and external factors went under analysis, linkingprevious studies and our data to explain, evaluate and understand how they couldinfluence risk aversion.Our study brings a real added value to the previous research. Indeed, on the theoreticallevel, our study allows us to know that it is not compensation that has the most prominentleverage effect on the risk aversion of executives. Beyond this theoretical benefit that thisresearch brings, it also brings a practical benefit since it will allow the managers of listedcompanies to better understand the stakes of a compensation structure, in particular thatof risk aversion. It provides companies with the keys to conceptualizing a compensationstructure in accordance with their culture and long-term objectives.

This thesis aims to examine what impact the Covid-19 pandemic has on the pay-performance relationship. This study performs an OLS regression analysis of total CEO compensation on accounting and market-based firm performance for 2017-2020 using 233 Swedish listed firms. The results could not find a positive relationship between total CEO compensation and firm performance during 2017-2020. The findings rather indicate that Swedish CEOs are rewarded for failure. Moreover, the results could not find support for a weaker pay-performance sensitivity. These results contribute to the existing research by giving insights into the effects of financial distress on the pay-performance relationship in Sweden.

<p>This thesis includes three essays on several important topics in empirical finance: Chief Executive Officer (CEO) risk-taking incentives, the cost and syndicate structure of bank loans and corporate investments with internal funds. This thesis contributes to these aspects of finance literature and the three essays are presented in Chapter 2, 3 and 4.</p> <p>The first essay investigates how implicit contractual relationship between creditors and borrowers attenuates the conflict of interest between creditors and shareholders that arises from CEO compensation contracts when a corporation can be considered a nexus of explicit and implicit contractual relationships among stakeholders. We find that bank loans for firms with CEOs who are provided with risk-taking incentives have higher spreads and shorter maturities. A relationship between the lender and its borrower mitigates the influence of incentives for CEO risk-taking on loan spread and loan maturity. Such a relationship is especially beneficial for informationally opaque firms. The results are robust to the endogeneity of relationships and the simultaneous determination of loan spread, loan maturity and collateral requirements. Our results highlight the importance of the interaction between explicit and implicit contractual relationships to a firm’s borrowing cost.</p> <p>The second essay investigates the effects of a borrowing firm’s CEO risk-taking incentives on the structure of the firm’s syndicated loans. The conflict of interest between creditors and shareholders arising from CEO risk-taking incentives is a major concern of borrower moral hazard for syndicate lenders, which require intensive monitoring by lead arrangers in a syndicate. When CEO risk-taking incentives are high, syndicates are structured to facilitate better due diligence and monitoring efforts. These syndicates have a smaller number of total lenders and are more concentrated, and lead arrangers will retain a greater portion of the loan. Moreover, we examine the factors that affect the link between CEO risk-taking incentives and syndicate loan structure. CEO risk-taking incentives have a lesser effect on the syndicate structure when lead arrangers have a good reputation and have a prior lending relationship with a borrowing firm. By contrast, CEO risk-taking incentives have a greater influence on syndicate structure when borrowing firms are informationally opaque, are financially distressed or have low growth prospects.</p> <p>The third essay studies corporate investments with internal funds when firms face real investment friction using a sample of U.S. oil companies from 2003 to 2011 before and after the 2008 financial crisis. We show that firms’ capital expenditures are more sensitive to their lagged cash holdings than to their contemporaneous cash flows. By making investments with realized cash holdings, firms can avoid the investment adjustment costs that are incurred when investing with uncertain cash flows. We also show that cash flow policies are affected by liquidity constraints following the 2008 financial crisis: firms build up more cash reserves from cash flows, cut back payouts and raise more debt to maintain cash holdings.</p> / Doctor of Business Administration (DBA)

The first part of the dissertation examines whether M&As are related to internal capital markets by analyzing the changes in internal capital market utilization following M&As in the U.S. property-liability insurance industry during the period 2000-2015. The results suggest that both acquiring insurers and targets increase internal reinsurance and undergo more intragroup capital transactions after the M&A. The probit analysis provides evidence that insurers with low internal capital market utilization via reinsurance are more likely to engage in M&As as an acquirer or a target. This indicates that acquiring insurers with small internal capital markets have an incentive in making acquisitions to expand their internal capital markets. This study finds empirical evidence that internal capital market use is one of the determinants of M&As by utilizing internal transaction data of U.S. property-liability insurers. The second part of the dissertation investigates the relationship between executive compensation and internal capital market efficiency in the U.S. property-liability insurance industry for the period 2000-2015. The results indicate that executive compensation has a significant and positive influence on the efficiency of internal capital allocation. An executive’s incentive for efficient internal capital allocation is different depending on the type of compensation, the size of internal capital markets, and external events such as the global financial crisis. These findings are robust to corrections for potential endogeneity bias. I also find evidence of a non-linear relationship between efficiency and the size of internal capital markets. Internal capital markets should continue to expand as long as the benefit of relaxing credit constraints is greater than the cost of managing larger internal capital markets. Overall, the result of the study is consistent with the view that better alignment of executive incentives with shareholder interests leads to efficient internal capital allocation. / Business Administration/Risk Management and Insurance