Essays on empirical corporate governance

This dissertation contributes to the debate on the costs and benefits of reforms that mandate disclosures of executive compensation and to the debate on incentives from executive compensation. In Chapter II, I analyze how stock prices react to the announcement of mandatory increases in compensation disclosures. I find that stock prices react positively, on average. This result supports prevalent calls for tighter disclosure requirements. However, the stock price reaction also depends on the quality of corporate governance. Positive abnormal returns are decreasing in shareholdings of institutional investors and become negative for large institutional ownership. This result supports skeptical views about “one size fits all” regulations. In Chapter III, I analyze differences in performance and corporate policies between firms that do and do not voluntarily disclose the costs of pensions for their incumbent executives. I find that firms with hidden pension costs are valued at a discount, have lower operating performance, pay their employees higher wages, and make worse acquisitions. Moreover, I find evidence that hidden pensions costs are associated with weak boards and inefficient compensation designs. These results support the view that stealth compensation indicates agency problems. In Chapter IV, I analyze how executive pensions and compensation deferrals are related to corporate risk-taking. I find that firms pursue more conservative investment and financing policies when their CEOs have accumulated more wealth in the form of pensions and deferrals. These results should be of interest for policy makers who seek to reduce risk-taking incentives in executive compensation