Three essays on agency theory

This dissertation consists of three essays. The first essay examines how executives' compensation structure interacts with firm debt structure. First, a theoretical model is built to analyze the relationship between executive compensation and firm debt structure. Then U.S. equity Real Estate Investment Trust data is used to test empirical implications of the model. Results show that when executive pay is more sensitive to firm stock price volatility, the firm has more secured debt within their capital structure. Evidence also shows interesting links among sensitivity of executive pay to firm stock price, firm investment, and firm secured debt usage.;In the second essay, we study the transaction price and the expected time-to-transaction for sellers in two different scenarios: selling a house with a broker and without a broker. We show how the expected transaction price and the expected time-to-transaction change when sellers choose different marketing channels. We also show that, in hot markets, the value a broker can potentially bring to the seller is less than that in cold markets. Another interesting result of our research is that the optimal brokerage commission rate is a decreasing function of market tightness; the hotter the market, the lower the optimal commission rate.;The key question I address in the third essay is how firm financial conditions affect the connection between executive compensation and firm investment policies. One major finding is that higher incentive compensation gives managers more incentives to choose more risky investment, such as R&D. But financially constrained firms invest more in PP&E, as it can serve as collateral and helps mitigate future financial constraints. Then we run regressions for financially constrained firms and financially unconstrained firms separately. The results show that for financially unconstrained firms, executive compensation is an important determinant of firm investment decisions. On the other hand, for financially constrained firms, firm investment is less responsive to executive compensation.