Three studies on the determinants and consequences of managerial incentives in global markets

Abstract

Abstract

This thesis comprises three studies that examine the factors shaping managerial incentives and the impact of these incentives on corporate strategic decisions and outcomes in global markets. Study 1 examines the relation between female board representation and the adoption of corporate social responsibility (CSR) criteria in executive compensation contracts (hereafter, CSR contracting or CSR-based executive compensation) in an international setting. Using a comprehensive sample of 41,236 firm-year observations from 59 countries during the period 2002-2018, I find a positive and robust effect of female board representation on the likelihood of a firm adopting CSR-based compensation. Further, my cross-country moderating analyses indicate that the positive relation is more pronounced in countries with greater gender equity for senior positions and in countries with a lower degree of masculine culture. I also show that with greater female director representation, the use of CSR-based executive compensation is more conducive to enhancing CSR performance and firm value. Overall, this study sheds light on the effectiveness of introducing female directors in reinforcing the CSR orientation at the firm leadership level in a global context, which has implications for both business practitioners and researchers.

Study 2 examines whether and how the use of CSR contracting affects a firm's stock price crash risk. Using a comprehensive sample of 42,049 firm-year observations from 53 countries from 2003 to 2019, I find that CSR contracting firms have greater stock price crash risk. This positive association can be attributed to exacerbated managerial bad news hoarding behavior and overinvestment. I further demonstrate that the positive relationship between CSR contracting and crash risk is more pronounced for firms with powerful CEOs, as well as in countries with inferior investor protection and disclosure transparency. Overall, my findings are consistent with the agency cost and managerial power perspective, suggesting that CSR contracting may be exploited by powerful and opportunistic managers as a means of diverting shareholders' attention and concealing bad financial news. My findings have implications for both researchers and business practitioners.

Study 3 examines how managerial labor market considerations influence a firm's likelihood of cross-listing. Leveraging the staggered adoption of the Inevitable Disclosure Doctrine (IDD) - a legal doctrine enhancing trade secrets protection by restricting managerial mobility within the domestic labor market - by state courts in the United States, I provide robust evidence that firms are more likely to pursue cross-listing following IDD adoption. In analyzing cross-listing destination choices, I find that post-IDD adoption, firms tend to favor cross-listing in countries that are geographically and culturally closer to their home country, but that economic and legal proximity does not significantly influence their choice of destination. Further, the effect of IDD adoption on cross-listing is more pronounced for firms led by CEOs with a shorter tenure and higher general managerial ability, who are often more motivated and better equipped to pursue the international career opportunities. I also find that managers from IDD-adopting states whose firms have cross-listed abroad are more likely to transition to overseas jobs, secure CEO roles in foreign firms, and join larger foreign firms, providing evidence of the role of cross-listing in facilitating global job mobility for managers. This study identifies a previously unexplored motive for cross-listing, namely managers' labor market incentives, thereby offering new insights into the interplay between trade secrets protection, corporate strategic decisions, and managerial mobility in the global labor market.