DescriptionThe dissertation examines the effect of pay ratio and the value of board time commitment. This first essay investigates the impact of pay ratio on employees and investors. I find that poorer employee productivity is associated with a higher pay ratio, whereas worse employee satisfaction is only associated with a higher industry-adjusted pay ratio. I also find that firms with higher pay ratio are more likely to receive higher shareholder Say on Pay voting dissent, and higher mutual fund voting dissent. The results are consistent after regressing on unexplained pay ratio and controlling for linguistic style, rule flexibility usage, local minimum wage, pay for performance sensitivity, and excessive CEO pay. Firms having a higher pay ratio are more likely to have lower sales, a lower firm return, and reduced CEO pay and pay ratio in the following year. The second essay examines how the ratio of CEO compensation to average employee compensation affects banks’ willingness to apply for the Troubled Asset Relief Program (TARP) capital, Treasury’s decision to approve the application, and participating banks’ pace to repay the funds during the financial crisis using the manually gathered data from eligible banks’ company fillings. Results show that banks with higher pay ratios are less likely to apply for the government aid and are more likely to pay back the funds faster. The Treasury is less likely to approve bank applicants with higher pay ratios. CEO turnovers during financial crisis are more likely to occur in banks with larger pay ratios. Evidence in this paper may shed light on the government’s potential future bailout policies.
Different from most countries that have no statutory rule or law pertaining to when people should retire from their occupations, China State Council enforces compulsory retirement for all workers. The third essay exploits this mandatory retirement regulation as an exogenous source of variation in independent directors’ workload to isolate the time commitment to provide new empirical evidence on the value of independent directors’ time commitment in the boardroom. The empirical findings using difference in difference (DID) and research discontinuity (RD) designs show that retired independent directors are more physically and cognitively committed to their monitoring and advising roles, evidenced by more personal board attendances, less authorized representative attendances, and increased diligence level. We also find that more time committed by retired independent directors is associated with better executive pay for performance sensitivity, lower excess CEO pay, more investment spending, higher financial statement comparability, and higher annual stock return.