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The effect of regulation on executive compensation and corporate governance to corporate risk-taking and performance: evidence from the Dodd-Frank Act

Choi, Albert
http://orcid.org/0009-0003-8431-7477
http://rave.ohiolink.edu/etdc/view?acc_num=ucin1692724548407048

Abstract Details

2023, PhD, University of Cincinnati, Business: Business Administration.
This dissertation package examines the effect of executive compensation and corporate governance related regulatory provisions on firm value and risk-taking decisions of industrial firms, using the provisions from the Dodd-Frank Wall Street Reform and Consumer Protection Act (DF) as an exogenous shock. In the first paper, I examine the impact of Section 972 of DF on market performance and investment decisions of duality firms. I predict that the disclosure requirements under Section 972, which requires duality firms to explain why the CEO also serves as the chairperson of the board, will mitigate the agency problem associated with duality firms. Results from the paper support this prediction, suggesting the disclosure shock from Section 972 improved the governance of duality firms with beneficial effects for corporate decision-making, leading to improved firm performance and a decrease in investments with a negative NPV. In the second paper, I predict that DF's passage will be followed by a decrease in the level and efficacy of risk-taking incentives (vega) without a corresponding decrease in risk-taking as measured by R&D spending. Provisions from Title IX of DF can discourage firms from providing executives incentives to take greater risks by adding scrutiny to the compensation process overall ("say-on-pay") and severance packages ("golden parachutes"), strengthening the independence of the compensation committee, requiring disclosure of the "pay ratio," and restricting managerial hedging activities. I predict these provisions will not necessarily decrease R&D spending by these firms because these provisions can also mitigate managerial agency problems by making it harder for executives to engage in rent-seeking through compensation. Results provide support for these predictions, as the level of R&D investments do not decrease despite the decrease in the level and efficacy of vega. Overall, my dissertation contributes to the literature on executive compensation, corporate governance, and agency problem by showing that DF provisions on executive compensation and corporate governance mitigated the agency problem in compensation and governance structure, with additional effect shown for firms with CEO duality.
Timothy Campbell, Ph.D. (Committee Chair)
Changjiang Wang, Ph.D. (Committee Member)
Michael Ferguson, Ph.D. (Committee Member)
144 p.
Finance
Corporate Governance; Executive Compensation; Dodd-Frank Act; Agency Problem; Overinvestments; Risk-Taking

Recommended Citations

Citations

  • Choi, A. (2023). The effect of regulation on executive compensation and corporate governance to corporate risk-taking and performance: evidence from the Dodd-Frank Act [Doctoral dissertation, University of Cincinnati]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1692724548407048

    APA Style (7th edition)

  • Choi, Albert. The effect of regulation on executive compensation and corporate governance to corporate risk-taking and performance: evidence from the Dodd-Frank Act. 2023. University of Cincinnati, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=ucin1692724548407048.

    MLA Style (8th edition)

  • Choi, Albert. "The effect of regulation on executive compensation and corporate governance to corporate risk-taking and performance: evidence from the Dodd-Frank Act." Doctoral dissertation, University of Cincinnati, 2023. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1692724548407048

    Chicago Manual of Style (17th edition)

ucin1692724548407048
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© 2023, all rights reserved.
This open access ETD is published by University of Cincinnati and OhioLINK.