Essays on Corporate Finance and Industrial Organization

Abstract

This dissertation consists of three essays on corporate finance and industrial organization. I apply structural approaches from the industrial organization literature to study issues in corporate governance.The first essay investigates the issue of why many firms, especially small firms, have high-fee defined contribution plans. The literature has ascribed it to demand-side frictions, focusing on the principal-agent problem between the employer and employees. In this essay, I show that this disparity is driven by a supply-side friction: recordkeepers exercise their market power by strategically excluding small employers through minimum revenue thresholds. Because most major recordkeepers are vertically integrated and bundle recordkeeping with their own investment products, exclusion enables them to raise recordkeeping fees and induce employers towards plans with more affiliated and expensive investment options. I build and estimate a structural model that quantifies the extent and consequences of exclusions. Counterfactual analyses show that policies designed to relax the exclusion, such as pooled employer plans, can expand access to high-quality plans and improve participant welfare, although these gains can be mitigated by recordkeepers' strategic adjustment of exclusions in equilibrium. The second essay provides a framework to explain two important patterns in the managerial labor market: high compensation and low mobility. This essay is the joint work with John Barry and Noah Lyman. We pose a structural model of the managerial labor market with general and firm-specific human capital accumulation, managerial bargaining power, and imperfect labor market competition. Empirically, firm-specific skill drives wage growth and variability over careers; it also restricts mobility and helps explain the low rate of external CEO hiring. We decouple bargaining power from labor market competition in managerial rent extraction, with competition accounting for a substantial share, especially for poached CEOs. Firm-specific skill accumulation increases match productivity between firms and managers, shaping the dynamics of rent extraction by raising rent growth over tenure while dampening it over experience. The third essay examines the strategic voting behavior of institutional investors in proxy voting. This essay is the joint work with John Barry and James Pinnington. We show that preferences and information are not separately identified from individual voting patterns alone: correlated information and strategic voting jointly determine the mapping from preferences to votes. Identification arises through cross-shareholder voting correlations and differential exposure to public information across investor types. Estimating the model on mutual fund voting, we recover institution-level information precision and information-corrected preference parameters. Despite higher support for management, blockholders' preferences are close to those of dispersed shareholders. Equalizing information across investor types has a larger effect on voting than equalizing preferences.