(:Unkn) Unknown, David Reeb, University, My
This dissertation studies the association between CEO ability and various aspects of corporate governance, specifically firm performance, executive compensation contracts and firm opacity. In the first essay of this dissertation (Chapter 2), I examine the effect of CEO ability on firm performance. My analysis uses a unique instrument of CEO ability that is based on a CEO's commitment decisions in US presidential elections. Intuitively, CEO ability is measured based on how well they forecast US
more » ... l they forecast US presidential elections, one year prior to the race, relative to the candidates expected chances of winning. I find that this instrument of CEO ability is positively related to firm performance. Interestingly, I find that high ability CEOs have a greater impact on Tobin's q in small firms than in large firms. Yet, high ability CEOs have the greatest dollar impact on shareholder value in large firms. In addition, CEO ability appears to be quite important to outside shareholders in high growth firms. Lastly, I find that CEO ability is positively associated to merger announcement returns, which implies that higher ability CEOs engage in value-creating merger activities. The results are robust to industry and time controls, as well as various tests that consider an alternative explanation focusing on political influence. The second essay (Chapter 3) explores the effect of CEO ability on the structure and level of compensation contracts. I find that CEO ability is positively associated with total compensation level. CEOs in the highest quartile of the ability proxy earn almost $2.2 million more than CEOs in the lowest quartile of CEO ability. Further analysis indicates that CEO compensation structure differs markedly between the highest and lowest ability CEOs. Specifically, I find that the high ability CEOs receive 2.1% more stock based incentives than low ability CEOs. Thus, the low ability CEOs receive more of their pay in the form of cash compensation than do high ability CEOs. Further tests indicate that high ability CEOs ha [...]
doi:10.34944/dspace/3721 fatcat:gcnkolxtk5hfdgp34ksx7ejqtm