Two essays in corporate finance
Smith, Geoffrey Peter
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This dissertation is comprised of two essays. In the first essay, I study how systematic risk and managerial ability affect the relation between chief executive officer compensation and peer firm stock returns (commonly referred to as relative performance evaluation or RPE). Based on a sample of 323 executives from 1996 to 2000, I find that peer firm stock returns have a lesser impact on executive pay when: (i) the firm’s stock return sensitivity to systematic risk is low, and (ii) the executive’s managerial ability level is high. These findings suggest that firm- and executive- specific characteristics can counteract the incentive effects of peer-return-based performance criteria. In the second essay, I study the response of cross-listed firms to the Sarbanes-Oxley Act of 2002 (SOX). I find negative and significant cumulative abnormal returns around SOX announcement dates for my sample of 424 cross-listed firms; firms from countries with low-quality regulatory systems responded less negatively than firms from countries with high-quality systems. I also find a significant downturn in cross-listing activity and that voluntary de-listings increased, post-SOX. Low profitability and low US market liquidity also increased the likelihood of a post-SOX de-listing.