| The essays in this dissertation investigate whether managerial incentives affect corporate decisions. The first essay examines whether managerial incentives affect the incidence of Chapter 11 filing versus a private workout when a firm is in financial distress. I show how a manager's compensation structure in a financially distressed firm can create conflicts between managers and equityholders over the choice of Chapter 11 versus private renegotiation. Using a sample of 63 voluntary Chapter 11 firms and 51 private workout firms, I find that when debtholders and equityholders prefer different resolution methods, the likelihood of Chapter 11 is related to ownership structure of a distressed firm. The second essay investigates whether managerial motives are related to international acquisition decisions. To identify when managerial motives are more likely to play a major role, I focus on the change in variability of stock returns following international acquisitions that have negative announcement period returns to U.S. acquiring firms, and examine how this change in the firm's risk is related to the firm's managerial payoff structure. I document a positive relationship between acquiring managers' stock option based compensation and the risk change of firms with negative announcement returns, suggesting that if the effects of risk-taking on option values are sufficiently high, managers engage in excessive risk taking. |
