In the first chapter, I study a recent and important innovation, the shift towards independent compensation consultants that provide advice only to boards. I construct a theoretical model to conceptualize the potential impact of independent consultants and then develop an empirical strategy to quantify the impact. One contribution of the paper is to provide strong identification of the impact of independent advice, something that has been challenged by the lack of appropriate data. I use a unique sample of Canadian firms which allows me to directly
measure the impact of non-compensation related consulting fees on compensation advice. I conduct a number of empirical experiments but the main tests exploit a "quasi-natural experiment" provided by the creation of an independent consultant, Hugessen Consulting, as a spin-off from Mercer. I show that switching from an a ffiliated consultant to an independent
consultant is associated with an increase in managerial incentives. Despite the benefits
of independent advice, independent consultants may not be hired due to higher fees, the influence of powerful CEOs, or because boards already possess adequate expertise.
In the second chapter, using a simple model of incentive contracting as a guide, I examine empirically whether some aspects of executive stock option backdating may be an optimal response of firms to distortions in the institutional environment, in particular tax law and accounting rules. Some of the findings suggest that firms may attempt to effi ciently lower the exercise price of the executive options in order to enhance managerial incentives for risk
averse and poorly diversified executives. In the presence of restrictive accounting and tax rules, backdating may be a mechanism by which to achieve this objective of better incentives.
Consistent with this explanation I find that backdating is associated with lower CEO pay
levels but higher CEO incentives.
In the final chapter, I use a dynamic structural model to show that on average firms excessively smooth their payout while maintaining larger than optimal levels of cash (excess cash) on their balance sheets. I provide an agency explanation for the positive correlation between dividend smoothing and cash savings. I show that the dynamic effect of managerial perceived cost to cutting payout results in accumulation of excess cash and distortion of shareholder value.
| Identifer | oai:union.ndltd.org:TORONTO/oai:tspace.library.utoronto.ca:1807/34796 |
| Date | 17 December 2012 |
| Creators | Mahmudi, Hamed |
| Contributors | Dyck, Alexander |
| Source Sets | University of Toronto |
| Language | en_ca |
| Detected Language | English |
| Type | Thesis |
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