Browsing by Subject "Bankruptcy"
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Item Open Access Essays in Industrial Organization(2015) Mazur, Lawrence JosephThis dissertation extends the economics literature in industrial organization with three empirical essays on the strategic decisions of firms in imperfectly competitive markets. Using data from the U.S. airline industry, I combine reduced-form analysis with recent econometric advances in the estimation of dynamic games to examine the market-level and industry-level behavior of oligopolistic firms. The first essay presents a framework for sensitivity analysis in merger simulation. The second essay continues the market-level analysis of merger effects by examining how airline mergers influence price dispersion. The third essay shifts focus to industry-level investment behavior, examining the role played by bankruptcy policy in disciplining capital investment.
Item Open Access Executive Compensation and Firm Leverage(2013) Albert, Michael JosephThis dissertation explores the role of executive compensation in determining the capital structure decisions of a firm. CEOs experience a large personal cost of default that interacts through the risk adjusted probability of default with their compensation contract. Since default happens in a particularly costly state of the world for a CEO whose compensation contract consists primarily of pay for performance elements, i.e. a CEO who has a large personal equity stake in the firm, a large pay performance sensitivity is negatively and significantly associated with firm leverage choice. I document this effect in detail for the first time, and I show that it is both statistically robust and significant in magnitude, approximately 1\% of firm value. I show that this effect is driven by the stock holdings of the CEO, not the option holdings. I provide a simple principal agent model that explains the observed negative relationship and makes additional predictions on the relationship of other firm characteristics to pay performance sensitivity and leverage. I then test and confirm these predictions empirically using a standard OLS framework and an instrumental variable approach to control for endogeneity in the compensation contract. I also look at leverage adjustment speeds and show that CEOs with higher pay performance sensitivity adjust leverage upwards towards target values more slowly and downwards more quickly than their peers, and I interpret this as direct evidence that CEOs are actively managing personal risk through firm leverage choice.