I examine whether religiosity is positively associated with the valuation multiples investors assign to fair valued items that are prone to managerial bias. Using a sample of U.S. banking firms, I find that the value relevance of net assets that are hard to verify is higher for firms located in more religious areas than for those located in less religious areas. Moreover, I hypothesize and find that audit quality and firm information environment quality moderate the positive association between religiosity and value relevance. I perform several robustness checks. First, I rule out several alternative explanations to my results. Second, I address the concern that my results suffer from an omitted correlated variable problem. Third, I show that my results hold for firms located in Urban as well as Rural areas. / Thesis (Ph.D, Management) -- Queen's University, 2013-11-28 11:01:35.578

Managerial communications often contain biased information because of managerial incentives and other influences. A common assumption in the accounting literature is that if investors are aware of managerial biases, they will be able to fully adjust for those known biases when reacting to managerial communications. Drawing on insights from psychology, I experimentally document that investors are not able to fully adjust for known biases in managerial communications--even when investors know the quantitative amount of the manager's bias. Indeed, investors behave contrary to economic theory as they are unable to fully unravel the effects of known biases when rendering judgments about the firm. My study has implications for researchers, regulators, and investors. / text

This dissertation consists of two topics. Chapter 1 examines the relationship between contingent commission use and underwriting performance as well as underwriting risk using data from 2005 to 2016. Top brokers were banned from receiving contingent commissions following the inquiry in 2004 led by Eliot Spitzer, former New York Attorney-General. But the ban raised concerns about whether it created a level playing field across the industry, as smaller brokers continued taking them. In addition, despite the possible conflicts of interest, contingent commissions have also been recognized as a way to better align agent and insurer incentives. Regulators agreed to relax the terms for the leading brokers in 2010, resulting in a less onerous compliance regime for contingent commission use. It is important to study the effectiveness of contingent commission use on improving underwriting performance. This study finds strong evidence supporting the hypothesis that contingent commissions’ usage is associated with better underwriting performance as well as lower underwriting risk. This study also finds a curvilinear relationship between underwriting performance and the level of contingent commission use. Chapter 2 investigates the impact of executive overconfidence on capital structure decisions and reinsurance purchases using a sample of 37 publicly-traded property-liability insurance groups for the period 2002 to 2016. This study finds that insurance firms with overconfident executives have significantly higher leverage ratios than those without overconfident executives. This study also finds evidence that insurance firms with overconfident executives cede more reinsurance, and this evidence is stronger for insurers with more limited business capacity than those with ample business capacity. The results of this study also indicate that overconfident executives prefer internal reinsurance to external reinsurance. This research provides evidence that personality traits of executive impact capital structure decisions and reinsurance purchases for insurance firms, which should be of interest to policyholders and regulators. / Business Administration/Risk Management and Insurance

This dissertation consists of two chapters. The first chapter examines the valuation effect of the Q-hypothesis of mergers and acquisitions. The Q-hypothesis of mergers and acquisitions proposes that takeovers of low-Q targets by high-Q acquirers should be value creating as acquirers redeploy the targets' assets. I revisit the valuation effects of mergers and acquisitions by considering the potential costs of asset reallocation, impact from misvaluation, and the size of the reallocated assets. By examining the combined announcement returns and changes in operating performance, I find evidence consistent with both the benefits and costs of asset reallocation in the full sample of M&As from 1989 to 2010. Controlling for impact for market misvaluation in the proxy of Q, I find that the relation between value creation and the Q-difference is an inverse U-shape. This is direct evidence in support of the Q-hypothesis of M&As using firm-level data from after 1990. The results are not driven by the acquirer's corporate governance structure and the difference in industry. The second chapter investigates investigate the effect of CEO overconfidence on learning from the market in completing the announced mergers and acquisitions (M&As). Overconfident CEOs overestimate their ability to create value and believe that the market incorrectly values the firm. Therefore, they will be less likely to revise their M&A announcement according to unfavorable market reaction. I construct a proxy for CEO overconfidence based on the CEO's decisions on exercising options similar to Malmendier and Tate (2005, 2008). Controlling for the corporate governance structure of the firm, I find that an overconfident CEO is more likely to complete a bid despite unfavorable market feedback. I do not find my results are driven by alternative interpretations including managerial quality and private information. / Ph. D.