Essays in Corporate Finance

Abstract

This dissertation presents two essays about corporate finance, product market, and corporate governance.

The first essay shows that, depending on product market structure, firms adjust executive compensation differently in response to shocks to firm risk. Using a natural experiment that increases firm risk due to discoveries of carcinogens, I find that treated firms increase CEO risk-taking incentives to mitigate underinvestment. This result is mainly driven by treated firms in less affected industries, which suggests that firms respond to shocks more strongly when fewer rivals face the same shock, and extends existing work on executive compensation adjustments based on industry-level analyses.

The second essay provides evidence that the effect of product market competition on corporate performance depends on the overlap in customer base. Competition between firms supplying to a same customer mitigates the decline in firms' operating performance after the passage of a business combination law. This finding is more evident when the common customer is the only major customer or when firms produce specific inputs. In addition, competition between firms supplying to different customers has little effect on firm performance. These results highlight the impact of the structure of production cluster, defined as a group of same-industry firms that supply to a same customer, on corporate outcomes.