Essays on Executive Compensation.

摘要

This dissertation investigates the determinants and consequences of executive compensation.;My first essay, "Do Better Connected Executives Have Longer Incentive Horizons?" examines the role of executive connections in mitigating managerial short-termism. I hypothesize that better connected executives have less short-termism because larger networks give them better access to information and protect them against adverse job outcomes. Using the duration of managerial compensation to measure incentive horizon, I find that better connected executives have longer incentive horizons. Executives with larger networks also engage in less earnings management, and executive connections affect earnings management through the channel of incentive horizon. These findings suggest that social networks mitigate managerial short-termism and facilitate corporate long-term behaviors.;The second essay in my dissertation, "Local Peers and CEO Incentives", first documents that a CEO's incentive pay ratio is positively associated with a local peer incentive, the average incentive pay ratio for CEOs of firms headquartered nearby. This peer effect is more pronounced for firms headquartered in smaller cities and for smaller firms. We then use the local peer incentive as a geographic instrument for CEO incentives and find that higher instrumented CEO incentives lead to subsequently higher R&D expenses, larger capital expenditures, more volatile stock returns, and higher firm value. Our geographic instrument for CEO compensation addresses endogeneity concerns that are pervasive in corporate governance research.;In the third essay, "The External Effects of Bank Executive Pay: Systemic Risk and Liquidity Creation", we develop a conceptual framework that links CEO compensation incentives to the external returns and risks generated by the firm but borne by society. Recent advances in measuring liquidity creation (Berger and Bouwman, 2009) and systemic risk (Acharya, et al. 2010) allow us to estimate our framework for U.S. commercial banking companies. We find that pay-performance incentives reduce both liquidity creation externalities and systemic risk externalities, while pay-risk incentives increase both externalities. Our findings infer a tradeoff for bank regulators: Restrictions on executive pay aimed at reducing systemic risk may necessitate a reduction in system-wide liquidity creation.