This dissertation is composed by two essays that explore corporate governance issues in S&P firms. The first essay examines changes in corporate governance after a firm gets added to the S&P 500 index? Using firms added from 1994 to 2007, this paper examines how governance mechanisms change for these firms. Specifically, I look at both the overall governance and details on how each mechanism changes. I find that governance improves after being added to the index. Controlling for firm size, leverage, prior firm performance, and growth opportunities, the market reacts positively to governance improvements as a whole. In addition, changes in governance are positively associated with changes in operating performance. In the second essay, the departure of a CEO often raises questions about who will replace him/her. This study examines the homogeneity/heterogeneity nature of the internal labor market using a novel measure, a heterogeneity index, which captures the concentration of executive compensation levels. I find that a more homogeneous internal labor market is associated with (1) a greater likelihood of an internal replacement, (2) a higher probability of a CEO turnover, and (3) a bigger tournament prize. In addition, the negative performance-turnover relationship is strengthened by a more homogeneous internal labor market. The heterogeneity index seems to proxy for internal labor market competition.

This thesis examines three important topics in corporate finance: the relation between the dividend-paying status of a firm and its investment and operating performance following a seasoned equity offering (SEO), the market's view on one-dollar CEO salary announcements, and the value of corporate social responsibility (CSR) in the event of a data breach. First, I provide an in-depth analysis of the connection between dividend payouts and corporate investment of SEO firms. Empirical studies have documented the decline in post-issue operating performance of SEO firms, and the potential overinvestment of SEO proceeds seems to be a critical factor. Studies on dividend payouts argue that the agency cost of overinvestment could be lowered when dividends are paid to reduce free cash flows held by managers. To examine the connection, I utilize two post-issue dividend policies, paying consecutive dividends or nothing, to separate my sample of SEO firms and compare the two groups' post-issue investment and operating performance. I find that non-dividend-paying SEO firms overinvest more, leading to the deterioration of asset turnover and worse post-issue operating performance compared with dividend-paying ones. The results suggest a beneficial effect of consistent dividend payouts on post-SEO business operations. Second, I examine the market reaction to the public announcement of a $1 CEO salary decision using explicit reasons for the decision and mechanisms for dealing with the base salary to disentangle possible explanations for the reaction. It shows that the market does not favour the so-called personal sacrifice when CEOs eliminate their salary to counter a downturn or crisis. When a firm is in a predicament or has poor performance, the market sees its CEO’s decision to give up the salary as a signal that the outlook for the firm is bleak and the CEO is attempting to save their position. However, when newly hired CEOs start with a $1 salary, the market reacts positively. The results ascertain that a $1 salary is not seen purely as a vehicle for interest alignment. Third, I investigate whether public firms' CSR activities pay off when they suffer a data breach that potentially harms their reputation and hurts firm value. I use a sample of US data breaches and two sources of environmental, social, and corporate governance (ESG) ratings to investigate whether CSR engagement by public firms mitigates the negative stock market reactions to their data breach announcements. I utilize pre-breach ESG scores to separate my sample of breached firms into high and low CSR groups. Using event study methodology, I find that the market reacts significantly negatively to only the low CSR group's announcements. Consistent with previous studies on how firms benefit from CSR activities when they face adversity and lose public trust, the results suggest that social performance protects firms against information leakage incidents. However, the extent to which the market assesses the ratings from different providers is still divergent, which is a concern for practitioners. / Thesis / Doctor of Philosophy (PhD)

This thesis explores board nationality diversity, focusing on foreign non-executive directors and their relationship with CEO compensation, firm performance, and crash risk for a sample of UK firms from 2002 to 2015. First, we examine the changes in board composition over the years and find an increase in foreign non-executive directors and in the number of foreign CEOs managing UK firms. We discover boards have become smaller, more independent and CEOs occupying dual roles have considerably reduced. Next, we analyse the relationship between foreign non executive directors and CEO compensation and note that firms with more foreign non executive directors pay less to their CEO. Moreover, European and other international non-executive directors are particularly effective at limiting CEO compensation. Then we examine the impact of foreign non-executive directors on firm performance and show that foreign non-executive directors positively impact firm value. CEO and executive directors’ equity-like compensation and share ownership also positively influences firm performance. Our findings suggest that European and American non executive directors are more effective in improving corporate performance. Finally, we analyse the relationship between foreign non-executive directors, CEO compensation and crash risk. Foreign non-executive directors monitor the board and mitigate the impact of CEO equity-linked pay on stock price crash risk. Our analysis reveals that leverage increases crash risk, but that foreign non-executive directors, of high leverage firms lower crash risk. Overall, foreign non-executive directors serve as effective monitors and advisors to moderate executive pay, improve firm performance and reduce stock price crash risk.

This thesis investigates Swedish market reactions to CEO turnover and further studies how the size of these market reactions can be explained by company specific and CEO specific factors. Through t-tests and multivariate analysis this study analyses 136 CEO turnover announcements from the years 2017-2022 to find proof of a market reaction and to find potential explanations to the size of these market reactions. The results of this study show that the Swedish market on average reacts positively to CEO turnover announcements regarding the studied firms abnormal return and cumulative abnormal return, which shows that CEO turnover announcements contain useful information for investors. Our study finds indications of differences market reactions size of CEO turnover announcements between small and big firms and differences in market reaction regarding the experience level of the appointed CEO. Our study also found that a company's ROA, M/B, and their appointed CEO's experience level influence the size of these market reactions. As the market reactions due to CEO turnover often occurred the days before the CEO turnover announcement, this study's also found indications of potential insider information leakage within Swedish firms.

In the management literature, the debate on how Corporate Social Responsibility is becoming a priority. Several aspects of the CSR have already been studied, for example, what are the corporate motivations for engaging in responsible activities. Recently, following the Upper echelon theory, researchers are trying to understand what are the top management personal characteristics that influence their decision-making. This master thesis aims to demonstrate that the demographic feature “Age” of the CEOs is a crucial factor in influencing their propensity toward responsible behaviors. Moreover, this study will investigate if the importance that theoretically, the new generation gives to the social and environmental issues, find empirical evidence. Using the global Fortune 500 firms as a sample, the relationship between the age of the companies’ CEOs and their CSR performance have been tested. Additionally, the moderation role of their nationality has been studied using Hofstede’s dimensions. The findings show that the younger are the CEOs and the higher is the firm’s CSR score. Instead, contrary to the expectations, the moderating role of the nationality found no significance.

No description available.

No description available.

No description available.

This dissertation examines the effect of various corporate governance mechanisms on firm risk taking. The first essay examines the effect on firm risk through the CEO ability channel, while the second essay examines the effect on firm risk through the institutional investor channel. This first essay investigates CEO risk management ability. Using CEO education as a proxy for ability I examine the relationship between CEO education and various types of risk: (1) market risk, (2) credit risk, and (3) operational risk. Propensity score methods are used as a way to deal with the endogenous matching problem which exists in the executive compensation literature. These methods are proposed as an alternative to the managerial fixed effects approaches such as ``spell fixed effects'' and the mover dummy variable method (MDV). While the managerial fixed effects methods would fail when the explanatory variables of interest are time-invariant, it is possible to capture this variation in managerial effects by using propensity score methods. I find that the effect on the various types of risks varies by the type of risk and by the type and quality of education. Firms with CEOs that have law degrees and actuarial credentials are associated with fewer operational risk events. While firms with CEOs that have MBA degrees are able to manage market risk better than their peers. Overall, the quality of CEO education matters, and in many cases it is associated with a simultaneous reduction in firm risk and increase in firm value. This second essay investigates the impact of institutional shareholder ownership on firm risk taking. I find a negative relationship between the aggregate institutional ownership percentage and firm risk taking. I also find that institutional ownership concentration induces risk taking. In addition, the effect on firm risk is stronger when institutional shareholders have majority control. The results provide support for both the prudent-man law and the large institutional shareholder hypotheses. Furthermore, the results are robust to quasi-experimental approaches including propensity score matching and doubly robust estimation. These findings provide additional evidence on the benefits and incentives of institutional shareholder monitoring. / Business Administration/Risk Management and Insurance

In recent years, corporate textual disclosure has gained considerable attention in accounting and finance research. The textual disclosures complete the picture of a firm's economic performance in addition to the quantitative information. Many studies have investigated various determinants and consequences of textual disclosure attributes. This thesis aims to contribute to this growing strand of literature that studies the drivers of the textual attributes of narrative disclosure. The thesis consists of three essays related to political uncertainty, CEO characteristics, and corporate social responsibility. The first essay (Chapter 2) investigates the impact of political uncertainty on the informativeness of a firm's narrative disclosure. Using conference calls, the results show that firms exposed to political uncertainty provide less readable disclosure, more ambiguous tone, and rely more on scripted responses to analysts. Further analysis reveals that obfuscatory disclosure has predictive power over a firm's future poor performance, suggesting that managers use obfuscation to opportunistically mask poor future performance during high political uncertainty periods. The second essay (Chapter 3) examines the impact of the CEO's tenure on the firm's disclosure complexity. Based on upper echelon theory, the results show that early tenured CEOs with greater career concerns have more incentive to provide more readable disclosure to affect the market perception about their ability. However, long-tenured managers get more entrenched and provide obfuscated disclosure. In addition, the results indicate that the effectiveness of different governance mechanisms in improving the quality of a firm narrative disclosure depends on the CEO's tenure. In particular, board oversight (internal governance by subordinate executives) is more effective in constraining new (long-tenured) CEOs' myopic disclosure practices. The third essay (Chapter 4) explores the relationship between corporate social responsibility (CSR) orientation and textual attributes of financial disclosures. The results show that firms with high CSR orientation provide more readable disclosures and use a less ambiguous tone in their annual reports. These findings are consistent with the notion that managers in CSR-conscious firms adhere to high ethical standards and commit to improving the transparency of their firms' financial disclosures. In addition, the study provides evidence that corporate governance mechanisms and CSR are substitutes for each other to ensure transparent disclosure. Overall, the findings of these studies provide insights to the investing community, the firm's board of directors, and standards-setters to better understand the implications of firm CSR engagement, political exposure, and CEO characteristics in financial reporting contexts beyond quantitative metrics.