Essays On Managerial Agency Problems

This dissertation consists of two essays. The first essay examines how corporate payout policies and debt can be interchangeably used as substitutes in controlling free cash flow (FCF) problems. The roles of retained earnings/total equity (RE/TE) and various risk measures, such as equity beta, cash flow beta, and volatility are also analyzed in the choice of different payout policies as substitute for debt. Evidence suggests that firms with lower debt tend to payout more to control for free cash flow problems, and this relation is mainly driven by dividends, suggesting that dividends are more direct substitute to debt in controlling FCF problems. Also, the results support that RE/TE significantly affects dividends, but the substitution effect induced by FCF problems is unaffected by the inclusion of RE/TE. Furthermore, contrary to the recent literature, when leverage is considered, the effect of FCF problem on dividends dominates the effect of RE/TE. Therefore, FCF problem still plays a very important role in explaining firm's payouts. Furthermore while equity beta and RE/TE have symmetric effects on dividends and repurchases, cash flow beta has asymmetric effects. Cash flow beta weakens the degree of substitution between dividends and leverage in favor of repurchases. Even after controlling for RE/TE, size and equity beta, cash flow beta has a significant explanatory power for a firm's dividend payments. The second essay examines the behavior of managers who are endowed with executive stock options and investigates a possible distortion of corporate payout policy and its fixing mechanism. Executive managers awarded with large stock options may have an incentive to substitute repurchases for dividends in their payout policy and this may results in an agency problem between managers and shareholders. Surprisingly, dividend protection that can fix this distorted managerial incentive by compensating managers for the amount of dividend payments is rarely adopted in US. Various hypotheses are tested to explain the observed low dividend protection rate. First, the accounting consideration based on the EPS dilution effect is studied. Second, the relationship between executive options and dividends is estimated after controlling for possible endogeneity issues using structural models. Third, investors' preferences between dividends and repurchases over the past history are studied controlling for various firm characteristics. Evidence suggests that while option grants makes executives more likely to pay out through repurchases, there is a concurring trend in investors' preferences. Taken together, the aligned preferences of managers and investors towards repurchases can help explain the observed low dividend protection rates.

Essay from the year 2015 in the subject Business economics - Business Management, Corporate Governance, , language: English, abstract: While it is important to understand the various objectives of firms, it is equally important also to note that some of these objectives may be inconsistent or incompatible with each other due to the principal-agent problem that normally exists between shareholders (owners of the firm) and managers (those who control the firm). This essay serves to analyse some managerial theories in light of the principal-agent problem and the conflict of interest between the shareholders and managers.

This dissertation explores three aspects of CEO perquisite related issues. The first essay is related to CEO perk consumption and firm value. We break down CEO perk packages into five groups (management/entertainment, personal use of corporate jets, cash or cash equivalent, life and health, and financial planning) and examine separately the determinants of these different types of CEO perks and their effects on firm value. We find a difference between the types of perks and their destruction of value. Perks related to leisure and management such as management/entertainment, personal use of corporate jets, and financial planning perks have a significantly negative effect on firm value, while other perks are benign. Consistent with the agency cost perspective, agency-related factors significantly predict CEO consumption of value-destroying perks. Our results also highlight the value-destroying channels: the negative effect is likely driven by the agency problem and shareholders' negative reaction to the disclosure of CEO perks. The second essay focuses on a specific channel through which director connectedness may reduce monitoring quality: CEO value-destroying perk consumption. Specifically, using CEO personal use of corporate jets as a proxy for agency cost, we find that the connectedness of independent directors is associated with a higher probability of a CEO's personal jet use. These results are robust to tests designed to mitigate self-selection and endogeneity concerns. Our results are consistent with the idea that being central in the network reduces the director's monitoring effort and add additional evidence to the "dark side" of director connectedness. The third essay examines the relationship between personal use of corporate jets and CEO turnover. Specifically, I investigate whether the CEO personal use of corporate jet is perceived as agency cost by the board by examining the relation between personal use of corporate jets and CEO performance-turnover sensitivity. I find that the probability of CEO turnover is related positively to the CEO personal use of corporate jets. The positive relation between jet use and CEO turnover is concentrated in the sample of less entrenched CEOs. In addition, I find that the board is likely to cut down the amount of CEOs' permitted personal jet use after a turnover if firm performance is relatively poor prior to the turnover year. My findings indicate that boards of directors use CEO personal use of corporate jets as a signal of agency problem to replace the CEO and that CEOs bear a cost to overconsume corporate jets for private benefits

Corporate Governance is a subject of great interest to academics, investors, and politicians throughout the world. Corporate governance is associated with the way firms are managed and controlled. Countries have adopted different governance systems to resolve the corporate governance issues. Anglo-Saxon systems differ from European and Japanese systems, and Eastern Europe and China, for instance, experiment with the way private organizations should be governed. Despite the great interest and intense debate, empirical evidence on the effectiveness of various governance systems is still sparse. This book brings together most current contributions from various perspectives and from an international angle. The book is an essential reading for academics, university students, practitioners, investors, politicians, and legislators.

This is a collection of published and unpublished essays by distinguished philosopher Michael E. Bratman of Stanford University. They revolve around his influential theory, know as the "planning theory of intention and agency." Bratman's primary concern is with what he calls "strong" forms of human agency--including forms of human agency that are the target of our talk about self-determination, self-government, and autonomy. These essays are unified and cohesive in theme, and will be of interest to philosophers in ethics and metaphysics.

Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.