Browsing by Subject "Compensation"

Now showing 1 - 4 of 4
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    ESSAYS ON MACRO-FINANCE
    (2021-05) Ying, Chao
    My dissertation investigates the interaction between macroeconomics and finance. It contains three chapters. Chapter 1 studies the private information explanation for the time-series pre-FOMC drift through risk reduction. Using transaction-level data, I document the informed trading is in the same direction of the realized returns in the 24-hour window before FOMC announcements, coinciding with the pre-FOMC uncertainty reduction. I integrate Kyle's (1985) model into a standard consumption-based asset pricing framework where the market makers are compensated for the risk of assets' fundamentals. Observing aggregate order flow, they update the belief about the marginal utility-weighted asset value, which resolves uncertainty gradually and results in an upward drift in market prices before announcements. I demonstrate that there is a strictly positive pre-FOMC drift if and only if the market makers require risk compensation. Chapter 2 is co-authored with Colin Ward. We develop an equilibrium model where cash holdings, costly refinancing policies, and managerial incentives are jointly determined to quantify the market's influence on management's ex ante behavior. We also derive a general formula that shows how agency and financing distortions shape payouts and compensation, two easily measured quantities. Our calibrated model estimates agency conflicts are nearly 10 times more severe than financial frictions for US public firms. Our analysis suggests that cutting corporate income taxes while introducing a tax on refinancing can reduce the relative severity of agency. Chapter 3 is joint work with Luca Benzoni, Lorenzo Garlappi, Robert S. Goldstein, and Julien Hugonnier. We investigate the optimal dynamic debt policy of a firm that issues non-callable debt subject to a fixed cost when shareholders cannot commit to future restructuring policies. We derive necessary and sufficient conditions for the existence of no-commitment Markov perfect equilibria. For a given debt issuance cost parameter, we identify a range of maturities for which equilibria exists and tax benefits are positive. In particular, for realistic values of issuance costs and debt maturity, our no-commitment framework generates equity and debt prices that are only slightly lower than those obtained under a global-optimal policy with commitment.
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    Essays on teacher labor markets
    (2012-11) West, Kristine Lamm
    This dissertation is comprised of three essays related to teacher labor markets. The first essay describes a theoretical model which incorporates an oft overlooked fact of educational production, namely the fact that teachers are asymmetrically well informed about what actions are best for their specific classes. The model shows that to take advantage of teachers' local knowledge, districts should offer contracts with output-based pay for performance coupled with decentralized decision making and support for teachers to help them set locally appropriate goals. I use data from Minnesota's Q-Comp program to empirically test the model. The data, however, do not confirm (or reject) the theory. The second essay investigates the impact of collective bargaining on teacher contracts using the 2003-04 and 2007-08 Schools and Staffng Survey (SASS) and data from a survey that I administered. Contracts negotiated via collective bargaining have greater returns to experience than do districts without collective bargaining. Unions do not appear to be a roadblock to basing compensation on student performance but they do oppose basing compensation on administrator review and basing tenure on student performance. The third essay turns to an analysis of average hourly wages. Using the American Time Use Survey (ATUS), I compare teachers' wages to demographically similar workers in other occupations. First I estimate that teachers work an average of 34.5 hours per week annually. Using the ATUS data, I conclude that high school teachers earn approximately 11% less than full time college educated workers in other occupations; but elementary, middle and special education teachers are not underpaid relative to full time college educated workers in other occupations.
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    Financial reporting comparability and relative performance evaluation
    (2016-06) Nam, Jonathan
    There is limited large-sample empirical evidence in the U.S. that CEO compensation contracts use the accounting performance of peer firms as a benchmark to evaluate the CEO’s own-firm accounting performance (i.e., accounting-based relative performance evaluation, RPE). Given the anecdotal and empirical observation that firms do use their own accounting numbers in determining CEO compensation, the lack of evidence of accounting-based RPE presents a puzzle. My study questions whether the lack of evidence is attributable to a limitation of the conventional empirical research design used to test for RPE. I propose that efficient relative evaluation using peer-firm accounting performance requires that the peer firm has a comparable financial reporting system. Thus, I refine the selection of the peer group by matching the firm of interest with industry-size peer firms with high financial reporting comparability. I find strong empirical evidence of accounting-based RPE in determining CEO’s total compensation when financial reporting comparability is taken into account in peer selection. Consistent with expectations, I also find that accounting-based RPE is used more in determining cash compensation than equity compensation and its use increases in the fraction of CEO cash compensation to total compensation. I further find that, when the fraction of equity compensation declined during the recent financial crisis, the use of own-firm stock returns and price-based RPE in determining CEO’s total compensation declined as expected, but the use of own-firm accounting performance and accounting-based RPE continued to be significant. Overall, my results resolve the apparent inconsistency between the substantial anecdotal evidence and the lack of prior empirical support for accounting-based RPE in determining CEO compensation in the U.S.
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    Three Essays on Corporate Finance and Labor
    (2017-06) Qiu, Yue
    My dissertation investigates the interaction between corporate finance and labor market. It contains three chapters. Chapter 1 studies the strategic role of debt structure in improving the bargaining position of a firm's management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining because it affects the ease of renegotiating debt contracts and thus the credibility of bankruptcy threats. Debt structure is shown to be adjusted as a response to an increase in non-financial stakeholders' negotiation power. Using NLRB labor union election as a laboratory setting and employing a regression discontinuity design, we find that passing a labor union election leads to an increase in the ratio of public debt to total assets and a decrease in the ratio of bank debt to total assets in the following three years after elections, whereas there is no significant change in the level of total debt. The syndication size of newly issued bank loans increases while creditor ownership concentration decreases once the vote share for unions passes the winning threshold. Further analyses confirm that the debt structure adjustments after union certification are more likely driven by the strategic concerns of management rather than more constrained access to bank loans. Finally, we also show that the degree of wage concessions is strongly related to a firm's debt structure using the airline industry as an empirical setting. Chapter 2 is co-authored with Tracy Yue Wang. In this study, we measure firms' exposures to skilled labor risk by the intensity of such discussions in their 10-Ks. We find that this measure effectively captures firm risk due to the mobility of skilled labor. We then examine the impact of skilled labor risk on firms' compensation policies. To overcome the reverse causality potentially present in the equilibrium relation between skilled labor risk and compensation policies, we use housing market factors that affect home owners' mobility as instruments for local firms' skilled labor risk, based on the insight that talents are likely homeowners. Consistent with theories on optimal compensation design in the presence of mobile talents, our results suggest that firms facing higher skilled labor risk use substantially more incentive pay for both top executives and employees below the top rank. Those firms also ex ante offer a higher level of pay to skilled labor. Finally, we find that firms facing higher skilled labor risk invest more in strengthening employee relations, but such investment tend to be concentrated in compensation and benefits related dimensions. Overall, our study suggests that the mobility of skilled labor is an important determinant of corporate compensation policies, affecting the split of surplus between firms' owners and employees. Chapter 3 studies the effect of labor adjustment costs on corporate risk management. Labor adjustment costs attenuate the correlation between a firm's internal fund and its investment opportunities and create more incentives for the firm to smooth cash flows. We find that firms in which employees are more protected by labor market institutions use more derivative contracts for risk management. We further find that firms that rely more on skilled labor engage in more derivative hedging since labor with higher skill is associated with larger adjustment costs. Such an effect is attenuated when the mobility of skilled labor is restricted.