Two Essays on Corporate Governance.

摘要

This thesis comprises two essays on corporate governance. The first essay (Chapter 2) examines whether or not the relationship between firm value and risk can be differently established according to executive compensations. By double-sorting the sample into five levels of risk and three levels of compensations independently, we make two findings. First, within a given level of risk, Tobin q increases with incremental equity incentives. This finding suggests that the risk-taking compensations drive the effective alignment of managers' pay to company performance. Second, within a given level of equity incentives, Tobin q has an upward trend over risk levels. As a result, firms achieve value maximization when both incentives and risk are at the highest levels. This result suggests a mechanism whereby equity incentives affect firm risk such that risk increment is associated with value creation. We further investigate how risk aversion affects the mechanism. Tobin q differences between the lowest and the highest interactions of risk and equity-incentives become larger as risk aversion decreases. This trend confirms that the risk-taking equity-based incentives effectively encourage risk-averse managers to undertake risky, yet value-creating investment.;The second essay (Chapter 3) examines a simple intuition about cash holding and default risk: A greater amount of cash better prepares firms for unexpected cash expenditures or contingent credit events. Hence, one may expect a negative correlation between large cash values and cost of risky debt. However, this intuition is not consistent with the data. We find instead a strong positive relationship between the two variables. From the perspective of corporate governance, we provide empirical explanations for the puzzling phenomenon. Building the samples differentiated by governance quality, we find that in poorly governed firms, as opposed to their well managed counterpart, agency problems drive the puzzle. The distinct patterns make two important suggestions. First, we should consider governance as a fundamental factor in pricing financial assets, especially costs of risky debt capitals or default insurance. Second, in the presence of additional risk associated with expropriating, stealing or wasting the liquid capital (i.e., cash), its opportunistic upward manipulation may not help fundamentally improve firm safety and reduce the cost.