Abstract
This thesis consists of three essays, presented as chapters, on corporate governance. The first chapter examines the internal corporate governance channels that focus on CEO compensation structure and the board of directors. The following two chapters study corporate governance mechanisms from an external perspective.The first chapter uses the employment history of over 17,000 directors of nonfinancial firms. It finds that boards with directors with executive experience in commercial banks compensate CEOs with higher inside debt. This finding is consistent with arguments that professional experience shapes decision making. The experience effect dominates the potential conflict of interest effect. These results are robust to several specifications addressing potential endogeneity. The increase in inside debt associated with banker-directors shifts CEOs’ incentives closer to the optimum, at which point the agency costs of outside debt are minimised to benefit shareholders.
The second chapter seeks to understand how freedom of the press affects corporate misconduct. The paper shows that managers engage more in accrual-based earnings management when their firms have a higher percentage of sales in countries with low media freedom. This effect is stronger when foreign product markets are further away from firm headquarters, when English is not the national language of the foreign partners, or when the fraction of institutional investors is low. This chapter also shows that the insiders of these firms tend to be involved in opportunistic insider trading through buy and sell transactions. The chapter offers novel insights into the economic impact of media freedom on corporations.
The third chapter explores how political uncertainty affects private loan contracts by exploiting the U.S. gubernatorial elections as a source of variation in uncertainty. This chapter shows that lenders are more likely to impose financial covenants and state-contingent pricing grids on borrowers headquartered in the states in election years, compared with off-election years. The effects are stronger when the winning voting margins are small, supporting the notion that political uncertainty manifests itself in loan contracting outcomes. Additionally, the effect of elections is more pronounced among the borrowers with greater information asymmetry. The evidence of this chapter suggests that gubernatorial elections increase transitory uncertainty, yielding significant impacts on private debt contracts.
| Date of Award | 23 Jan 2020 |
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| Original language | English |
| Awarding Institution |
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| Supervisor | Piotr Korczak (Supervisor) & Mariano Scapin (Supervisor) |