Risk, Power and Chief Executive Officer Compensation
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This dissertation consists of two essays on Corporate Finance. The first essay, included in Chapter 1, looks at how manager characteristics, namely age and tenure of a CEO, influence their compensation? CEO age influences the risk aversion of a CEO, while CEO tenure increases their power within their firm. Examining data on the compensation of U.S. CEOs from 1992 through 2015, I find evidence that both CEO age and tenure influence the composition of their compensation and in different ways. The second essay, included in Chapter 2, looks at the effect of reduction in litigation risk on CEO compensation. When states pass Universal Demand Laws (UD), they reduce the legal liability of managers of firms incorporated in these states to derivative lawsuits. According to earlier research, such laws are associated with increases in corporate investment. To the degree that CEOs are compensated for such risks, then the passage of UD laws should be associated with a reduction in the affected firm’s CEO compensation. While we do not find evidence that the passage of UD laws significantly reduces CEO total compensation, we do find that they are significantly correlated with changes in the composition of CEO compensation.