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Author ORCID Identifier


Open Access Dissertation

Document Type


Degree Name

Doctor of Philosophy (PhD)

Degree Program


Year Degree Awarded


Month Degree Awarded


First Advisor

Gerald Epstein

Second Advisor

Ina Ganguli

Third Advisor

Peter Skott

Fourth Advisor

Kevin Young

Subject Categories

Finance | Labor Economics | Political Economy


The Great Recession and the revival attention on inequality have cast doubts on various aspects of the governance of Corporate America. Not only the specific design of corporate governance institutions, but also the very purpose of the firm have became hotly debated issues. The first essay investigates the effect of the CEO's equity-based pay on workers' wages and whether the effect is amplified by product market competition. Since the 1980s, Chief Executive Officers' (CEO) pay has exploded, largely in the form of equity-based incentive compensation such as stock awards and options. Using a two-tiered principal-agent model, we show that aligning managers' incentives with shareholder interests through equity-based pay can lower workers' wages. Analyzing a sample that matches firm, manager, and worker information in the U.S. economy over the period 1992-2016, we show that higher equity-based pay is associated with lower average wages across various measures of pay and model settings. Using a novel instrumental-variable strategy based on a tax policy change, we provide evidence that an increase in the CEO equity-to-salary ratio by one unit, say, from 1:1 to 2:1, leads to a 4% decline in the average wage. We also find that while firms under all degrees of competition raise equity pay in response to the policy change, the negative impact on wages is stronger when the degree of competition is high, suggesting that competition does not substitute for executive compensation but amplifies its effect. The second essay analyzes the effect of CEOs' equity-based pays on firms' investment herding. Firms, like individual investors, may herd on investments resulting in the co-movement in firms' and the industry's investments. Will the CEO's equity-based compensation increase or decrease the investment herding? Economic theories disagree. The information-based theory suggests that more equity-based pay can reduce managers' herd behaviors, while the compensation-based theory argues the opposite. This paper provides a rare opportunity to examine the conflicting predictions of two major theories. Applying a novel instrumental-variable strategy to analyze a CEO-firm matched sample of the U.S. firms over the period 1992-2016, we find that an increase in the CEO's equity-to-salary ratio leads to a decrease in investment herding. The third essay discusses the role of the labor-affiliated shareholder in the reform of the purpose of the firm. Shareholder primacy may help to halt corporate misconduct when shareholders have pro-social preferences and concern about externalities. A shareholder democracy in which ethical shareholders push the manager to maximize shareholders’ welfare rather than wealth can lead to better social outcomes. However, my analyses show that, given the heterogeneity among shareholders and realistic institutional conditions, the balance still tilts heavily toward profit maximization such that ethical shareholders will become extinct and good social outcomes are not sustainable without the participation of union and public pension funds. This is consistent with the evidence that most social proposals have been coming from labor-affiliated shareholders, implying that a shareholder democracy cannot sustain itself without the involvement of stakeholders or the ``special interest'' shareholders that its proponents try to dismiss.


Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.