Three essays on managerial perquisites and corporate governance

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Date
2019
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University of Alabama Libraries
Abstract

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.

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Electronic Thesis or Dissertation
Keywords
Finance
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