Role of financial contracts and managerial compensation in resolving agency problems.

摘要

This dissertation consists of three chapters. The first chapter provides a theoretical model on the role of debt and managerial compensation in resolving agency problems. The second chapter uses data on large public corporations to examine the effect of agency problems on firm's capital structure and executive incentive, and the interaction between these two. The third chapter provides an explanation for the popularity of convertible preferred and participating preferred equities in venture capital financing and compares the use of these two securities.; Agency theory literature suggests that conflicts of interest between management and shareholders can lead managers to hide free cash flow and to shirk. In the first chapter, I develop a theoretical model to study the simultaneous choice of the capital structure and managerial compensation when a firm faces both a free cash flow problem and a moral hazard problem. The introduction of debt to address the free cash flow problem may exacerbate the moral hazard problem. Recognizing this interaction, I find the relationship between capital structure and managerial compensation can be either positive or negative, depending on the characteristics of firm's moral hazard problem.; In the second chapter, I examine the relationship between the leverage ratio and managerial pay-performance sensitivity using data from Compustat and Standard and Poor ExecuComp databases. The findings confirm the model implication in the first chapter and help to resolve the existing conflicting empirical results on the relationship between capital structure and managerial compensation. In this chapter, I also present evidence that the verifiability of a firm's cash flow can be important to understanding its capital structure decision and its managerial compensation practices.; In the third chapter, I focus on two unique information/incentive problems in venture financing: one is the difficulty of screening out bad ventures before they are funded and the other is venture capitalists' effort problem in helping new ventures to succeed. I show that convertible preferred equities solve these two problems simultaneously. I also predict that participating preferred instead of convertible preferred will be used when the liquidation value of the bad venture is relatively high.