Essays in corporate governance and insider trading

This dissertation investigates two problems in corporate governance, a sub area of corporate finance: insider trading and executive compensation.; Essay one addresses whether insiders of the firm time public announcements of company news when transacting in their own accounts and how market interprets insider transaction signals in conjunction with public news of the company. This essay focuses on CEO insider open market purchases and surrounding public news releases in the ten-year period between 1993 and 2002, and finds evidence consistent with CEOs' timing of public news about their companies. Specifically, CEOs are more likely to buy after bad news and before good news, and positive immediate post-trade abnormal returns associated CEO purchases before or after good news of the company account for such abnormal returns observed in the aggregate of all CEO purchase trades. At time of SEC filings, market interprets CEO transactions as confirmation of good news about the company.; Essay two examines agency and managerial entrenchment problems associated with interlocked compensation committees on corporate board of directors. Tax code IRS Section 162(m) denies corporate tax deductibility of non-performance based compensation expenses over {dollar}1 million for any one of its top 5 employees. This million dollar cap also applies to all forms of compensation if a firm has an insider on its compensation committee, thus creating a natural experiment to use as an exogenous shock to the system. Using executive compensation data from 1992 to 2001, this essay shows evidence of over compensations of interlocked executives and reduction of such over compensations after tax code 162(m).