Date of Award
Doctor of Philosophy (PhD)
Accounting & Business Law
In the first chapter of my dissertation I explore renegotiation of change in control payments. Mergers provide a unique setting in which to observe renegotiation of compensation contracts. In most firms, the chief executive officer (CEO) is promised a substantial change in control (CIC) payment if his firm is acquired and he is terminated because of a merger. In practice, target CEOs frequently renegotiate the value and composition of these payments during the merger process. Because target CEO turnover around mergers is very high, researchers such as Lambert and Larcker (1985) and Harris (1990) posit that CIC payments serve to compensate target CEOs for loss of expected utility. Using this research as a guide, I investigate whether deviations from expected outcomes are consistent with the Fama (1980) notion of ex post settling up, managerial opportunism, and the target CEO’s private information about the expected success of the merger. I find that the most informative aspect of renegotiation of CIC agreements is new information about the renegotiation skill or the governance environment of the acquirer. I find no evidence that renegotiation of CIC agreements harms target firm shareholders.
In the second chapter of my dissertation, co-authored with Bjorn Jorgensen and Naomi Soderstrom, we explore rounding of compensation. We extend prior studies by incorporating inferences from the tax, earnings management and psychology literatures to explore discontinuities in the distributions of salary compensation, bonus compensation, and option grants that are unrelated to determinants derived from traditional agency theory. We document discontinuities at amounts evenly divisible by 100,000 or 10,000. Empirical analyses provide evidence that the sensitivity of bonus compensation to performance is lower when bonus compensation is rounded. We find evidence that rounding of bonus compensation has behavioral effects that improve future operating performance, consistent with Akerlof’s (1982) theory of gift exchange. We also find evidence that rounding is more common in firms where agency conflicts are more prevalent.
Patrick, Paige Harrington, "Essays on Executive Compensation" (2013). Accounting Graduate Theses & Dissertations. 4.