Credible commitments and board power: Essays on corporate governance.

摘要

Each essay in this dissertation advances aspects of corporate governance that have received little attention in the literature to expand the scope of current explanations for governance phenomena.; A lapse of concentration: Omitted variables, board structure and firm performance. Researchers have provided evidence that a particularly strong form of takeover defense called an effective staggered board (ESB) is associated with poor firm performance as measured by Tobin's Q. This essay illustrates that the previously found negative relationship between ESBs and performance is at least partially driven by an omitted variable bias. Specifically, the omission of external ownership concentration (defined as the percentage of firm voting stock owned by all external owners of at least 5%) from regressions of firm performance on the presence of an ESB causes a downward bias on the coefficient estimate of ESB, making the relationship between ESBs and firm performance appear more negative than it actually is. This conclusion is supported through the application of a recent innovation by Altonji, Elder and Taber (2005) in assessing omitted variable bias by measuring the ratio of selection on observables to selection on unobservables.; Introducing external ownership concentration also allows for the first time an empirical analysis of the impact on firm performance of the interactions of external ownership concentration with ESBs and with other types of board structure. Results suggest that while external ownership concentration is associated with poorer firm performance under any board structure, having an ESB mitigates this negative impact of external ownership concentration over a range of concentration levels encompassing a majority of sample firms. At extremely high or low levels of external ownership concentration, firms with an alternative board structure perform significantly better than ESB firms. The finding that ESBs can have an ameliorative impact on firm performance in the presence of external ownership concentration is the first empirical evidence consistent with ESBs serving as credible commitment devices against shareholder opportunism in the form of hostile takeovers.; "Board power" and the structure of CEO compensation---director tenure, ownership and profession as checks to managerial power. According to the managerial power approach to CEO compensation and board dynamics, the structural advantages that CEOs possess enable them to extract rents by shaping their compensation packages in their own favor at the expense of shareholder interests. This essay examines characteristics of outside directors that potentially could improve their ability, termed "board power", to resist or minimize attempts by a CEO to extract rents in this way. Greater outside director ownership of firm stock, greater similarity of outside director tenures, and the presence of outside directors with certain occupations are all found to enhance board power. Evidence further indicates that board power does not affect the level of CEO total compensation, but that more powerful boards provide a greater proportion of CEO compensation in cash as opposed to equity. This latter finding is in conflict with traditional assumptions about the incentives from cash versus equity compensation but is explainable when the actual design of CEO equity compensation plans is considered. (Abstract shortened by UMI.)