Essays in corporate governance

Abstract

The dissertation consists of three essays. The first essay finds that corporate giving is associated with CEO characteristics, but not with measures of firms most likely to benefit in terms of increased profitability. This result is robust to a natural experiment and holds even among firms that are most likely to benefit from corporate giving. Analysis of firm value shows that shareholders discount the equity value of cash for firms making large charitable contributions. To examine when corporate giving represents an agency problem, I focus on CEO preferences, stock price reactions to the initial disclosure of corporate giving where executives and directors have personal interests, corporate contributions to company-sponsored foundations where shareholders lose their claims to these often sizable assets, the relation between CEO compensation and corporate giving (presuming it is a perquisite), and strategic uses of corporate giving that build CEO social ties with the independent directors. My results indicate that CEOs advance their personal interests when firms contribute and suggest that the value reduction is due to managerial misuse of corporate resources. In the second essay, I use a 2009 Delaware case law as a natural experiment to examine the effect of officers’ fiduciary duties (OFDs) on corporate acquisition decisions. I find that acquirers whose officers were protected from market discipline prior to 2009 experienced increased announcement-period abnormal stock returns after the event, mainly because post-event acquisitions by these firms created more synergies and reduced officers’ control. I also find that OFDs are more important in firms where officers have wealth risk, face less product market competition or are insulated from the market for corporate control. These results suggest that OFDs are a critical corporate governance mechanism that works in tandem with other disciplinary mechanisms. In the third essay, I use natural disasters as potential shocks to firm-specific performance and find that the compensation of both CEOs and non-CEO top executives is asymmetrically adjusted for exogenous changes in firm-specific performance. The results are robust to the inclusion of several corporate governance measures, supporting the hypothesis that asymmetric pay-for-performance sensitivity is a result of implicit incentives.