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.

Obey the Law and Do a Little Bit Extra? The paper provides evidence on how firms’ stakeholder orientation is associated with standard measures of corporate governance using a panel of 1778 US companies during the period of 1995-2006. We construct two binary indicators, one measuring stakeholder hostility and the other stakeholder friendliness using data from KLD ratings agency. Based on these indicators, we classify firms into four groups representing stakeholder hostile, neutral, friendly and ”friendly and hostile” firms. Our results show that both stakeholder friendly and hostile firms tend to have significantly lower insider ownership, smaller option grants, lower pay-performance sensitivities, larger boards, older executive officers and directors, lower institutional ownership and larger number of anti-takeover defenses than the firms in the neutral group. We also find that the probability of stakeholder hostile activity is positively related to the strength of corporate governance, but the effect is insignificant except in local and global community areas. A possible explanation is that in these areas stakeholders are protected mainly by ethics and social norms rather than by various regulations that is commonplace in labour, environment and customer related areas. These findings lend support for the idea that stakeholders are best protected by various regulations. Corporate Governance and Workplace Safety. This paper examines how the weakening in corporate governance affects workplace safety. We use anti-takeover laws in the US in the 1980s as a source of variation in corporate governance. Our measures of workplace safety are the number of violations of OSHA workplace safety regulation, penalties paid for these violations, the number of accidents and employees’ complaints about their workplace safety. We find that firms affected by the regulation presented significantly more workplace safety violations and penalties than otherwise similar firms that were not affected by the regulation. Accidents and complaints tend to decrease as a result of the anti-takeover regulation, but the results are not entirely robust. We also document that the increase in workplace safety violations was significantly smaller in unionized firms. This suggests that unions can play an important role in curbing managerial discretion. How Responsible is Private Equity? The financial success of leveraged buyout targets (LBOs) is frequently associated with deteriorating conditions for other stakeholders, such as workers, customers, suppliers, tax-payers and society as a whole. We obtain a comprehensive set of stakeholder ratings for a sample of 373 LBOs and examine the pre-and post-LBO performance of these ratings. LBO targets are characterized by weak stakeholder relations across a number of measures compared to their peers, in terms of corporate governance, transparency, employee relations and community relations. Controlling for this selection, we do not find systematic evidence in favor of the idea that private equity funds gain at the expense of other stakeholders. Private equity ownership alters targets in the direction of higher pay, improved work-life benefits, increased charitable giving, and decreased concerns related to retirement benefits, adverse economic impact, tax disputes, unfair marketing practices and antitrust problems. / Diss. Stockholm : Handelshögskolan, 2010; Sammanfattning jämte 3 uppsatser.

<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)

This dissertation consists of four self-contained essays primarily concerned with incorporating the objectives of real world top managers, as revealed by the available empirical evidence, in supergame-theoretic analyses of long-term competition between oligopolistic firms. The first essay, "Ownership, Control, and Collusion", considers how the separation between ownership and control affects firms' competitive attitudes when top managers have the preference for smooth profit streams revealed by the evidence on "income smoothing" and when managerial compensation has the low pay-performance sensitivity found in many empirical studies. In a similar fashion, the second essay, "Stock-Related Compensation and Product-Market Competition", deals with the effects of the apparently more aggressive managerial incentives linked to stock price (e.g. stock options), which have become increasingly common in the U.S., on long-term oligopolistic competition. In the third paper, "Debt as a (Credible) Collusive Device", shareholders’ commitments to reduce conflicts with debtholders by choosing a top manager with a highly valuable reputation or with "conservative" incentives are considered. These forms of commitment have been shown to reduce the (agency) cost of debt finance; this paper characterizes their effects on the relation between firms' capital structure and product market competition. The fourth paper, "Multimarket Contact, Concavity, and Collusion", addresses the relation between multimarket contact and firms’ ability to sustain collusive behavior in repeated oligopolies. It explores how this relation is affected by the strict concavity of firms’ objective function induced by managerial objectives and by other features of reality, discusses the effects of conglomeration and horizontal mergers, and extends the results to non-oligopolistic supergames. / <p>Diss. Stockholm : Handelshögskolan, 1999</p>

本研究探討經理人的風險承擔誘因與公司非以交易為目的之衍生性金融商品使用之關聯性。研究結果發現，第一，經理人之風險承擔誘因與非以交易為目的之衍生性金融商品的使用呈顯著負向關係，此結果顯示以股權為基礎之薪酬結構的確可以提高經理人之風險承擔誘因。第二，本研究比較若採不同類型之員工認股權，則指數型員工認股權較傳統型員工認股權提供較大的經理人風險承擔誘因。第三，若將股權為基礎之薪酬分為股票及員工認股權，發現經理人持有員工認股權與經理人風險承擔誘因呈正向且顯著關係；而經理人持有公司股票則與經理人風險承擔誘因呈正向關係但並不顯著。 / This study examines the relation between managerial risk-taking incentives and hedging derivatives usage. First, executives’ risk-taking incentives are negatively related to the hedging derivatives holdings, the result is consistent with equity-based compensation that promotes risk taking. Second, the indexed stock options appear to create stronger risk-taking incentives than the traditional stock options. Third, managerial risk-taking incentives are significantly related to executive stock options but not stock holdings.

We consider a risk averse entrepreneur who approaches a diversified venture capitalist (VC) for financing of a project with positive potential return. We develop several models that capture key features of the venture financing, including staged investment, VC oversight costs and agency conflicts. The contract between the VC and the EN includes risk-free and pay-performance sensitive compensation. Moral hazard arises because the EN must exert effort for the project to succeed. Our model is novel in that it also allows for asymmetric beliefs about project quality due to the EN's optimism even when the VC and EN face symmetric information. We first analyze the VC-EN relationship when the VC has bargaining power. We characterize the equilibrium levels for the pay-performance sensitivities, investment and effort over time and show they can be either increasing or decreasing or initially increasing and then decreasing. We find that asymmetric beliefs and risk aversion have opposite effects on the VC-EN relationship. When the EN is moderately more optimistic than the VC, he accepts more risk and exerts more effort and the VC responds with more investment. In contrast, risk aversion reduces effort and investment. Our model predicts a performance-sensitive investment policy where critical milestones must be achieved for investment to continue. These milestones increase with the risk aversion and decrease with the asymmetry in beliefs. Consequently, project duration increases with asymmetric beliefs and decreases with risk aversion. We calibrate this core model to empirical data and use numerical analysis to demonstrate that the technical and systematic risks have opposite effects. The VC's payoff and the project's value and duration increase with technical risk and decrease with systematic risk. We analyze the relationship when the EN has bargaining power, and find that the equilibrium and the corresponding implications for venture financing do change. In this setting, the negative effects due to risk aversion are more pronounced. We also find that if the EN's effort cannot be observed by the VC, then the pay-performance sensitivities, investment and effort all increase.

This thesis deals with the problems of optimal grading, employee performance evaluation by unaccountable managers, and the evolution of inequity-averse preferences. The purpose is to explain certain stylized facts related to these problems, and this is attempted with the help of contract-theoretic models. Chapter 1 of this thesis studies a teacher-student relationship as a principal-agent model with a costless reward structure. The model shows that the stylized fact of a mismatch and low correlation between students' abilities and their grades can be the expected-effort-maximizing outcome of teachers' optimal grading. Chapter 2 presents a three-tier model of a firm's economic organization, which is centered on the observation that managers do not fully internalize the payroll expenses they incur. With the idea that the degree of manager accountability varies inversely with firm size, the model predicts that the compression of ratings, the large-firm wage premium, and the inverse relationship between wage dispersion and firm size can actually be equilibrium outcomes. The last chapter presents an evolutionary argument for the endogeneity of people's preferences with respect to market exposure. It shows that aversion to income inequality observed empirically could have evolved as an optimal response to merchants' price discrimination. / <p>Diss. Stockholm : Handelshögskolan, 2009</p>