| This dissertation contains three chapters that address issues in the area of corporate governance. The first chapter examines the use of financial contracts by Silver King Communications to control two downstream firms---Urban Communications and Jovon Communications---who were affiliated with Silver King. These cases illustrate the weakness of the prevailing focus on the ownership of equity with voting, rights to determine the locus of corporate control. In doing so, Chapter 1 provides insights into the use of financial contracting to avoid regulation, to assign control rights, and to address costs associated with vertical relationships.; The second chapter examines the impact of the passage of the Energy Act in 1992 on the structure of pay for CEOs in the electric utility industry. Previous work by Joskow, Rose and Wolfram (1996) and Joskow, Rose and Shepard (1993) has documented both lower pay levels and lower sensitivities of pay to performance for CEOs of regulated companies versus CEOs of unregulated companies. Using a sample of 228 CEOs from 1988 to 1998, this chapter confirms findings by Kole and Lehn (1999) that deregulation alters several facets of the corporate governance structure. Specifically, the percentage of compensation from relatively fixed components---salary and bonus---decreases after the onset of deregulation, while the percentage of compensation from "at risk" components---stocks and options---increases. Additionally, total yearly compensation becomes more sensitive to the performance of the firm. It is also shown that very sizable changes in the value of option and stock holdings of CEOs occur after passage of the Energy Act. This effect cannot be solely attributed to the overall bull market, as share ownership percentages of CEOs double to quadruple using various measures of ownership.; Finally, the third chapter examines the methodology used in estimating pay-performance sensitivities (PPSs). Previous work by Aggarwal and Samwick (1999) has highlighted the importance of controlling for the variance of firms stock returns when estimating PPSs. These authors estimate PPSs that are an order of magnitude greater for firms of smaller stock return variances than for firms of larger variances. Using a comparable sample of CEOs and non-CEO executives, I find that when properly controlling for firm size, the negative effect of the variance in stock returns on estimated PPSs is greatly diminished for both CEOs and non-CEOs. In particular, when using dollar returns as the measure of firm performance, it is crucial to properly control for firm size. Regressions that use percentage returns as the measure of firm performance are not as severely affected by this phenomenon. However, evidence shows that controls should still be included for these regressions as well. |
