Essays in corporate governance

This dissertation contributes three essays to the economics of corporate governance. The first essay explores the sources of heterogeneity in the preferences of various classes of shareholders. I examine the proxy votes of AFL-CIO pension funds in director elections of 504 companies from 2003 to 2006. Using the 2005 AFL-CIO breakup as a source of exogenous variation in the union affiliations of workers across firms, I find that AFL-CIO affiliated shareholders are significantly more supportive of director nominees once the AFL-CIO no longer represents workers or represents significantly fewer workers at a given firm. Mutual funds and non-AFL-CIO labor union pension funds do not exhibit the same changes in voting behavior. This difference suggests that labor relations affect the voting patterns of some union shareholders. I also find that AFL-CIO funds are more likely to vote against directors of firms in which there is greater frequency of plant-level conflict between labor unions and management during collective bargaining and union member recruiting. The sensitivity of director votes to union conflict, however, decreases at firms in which the AFL-CIO no longer represents workers or represents significantly fewer workers. The evidence suggests that AFL-CIO affiliated shareholders vote against directors partly to support union worker interests rather than increase shareholder value alone.;The second essay examines the impact of non-equity stakeholders (labor unions) on CEO compensation. There has recently been much debate over the impact of labor unions on CEO pay. Various theories hypothesize that labor unions implicitly regulate CEO pay by reducing overall compensation levels and impacting executive compensation pay-for-performance sensitivities. This paper uses the financial assets of labor unions to proxy for the ability of unions to influence managerial pay. OLS firm fixed-effect estimates indicate that an increase in the ratio of union assets to union members leads to a reduction in CEO pay and an increase in executive compensation pay-for-performance sensitivities at unionized firms. These findings are robust to controlling for firm size, performance, and industry trends. Using affiliated union assets as an instrument variable for local union assets yields findings that are consistent with OLS estimates. The evidence supports the hypothesis that labor unions exert downward pressure on CEO compensation levels and improve managerial incentives.;The third essay examines the impact of investor protection laws on firm financing and investment decisions. I exploit the passage of state investor protection statutes ('blue sky laws') in the U.S. in the early 20th century to estimate the effects of investor protection laws on firm characteristics. OLS regression estimates indicate that the passage of investor protection statutes cause firms to decrease their use of debt financing and increase their use of equity financing. Firm fixed effect estimates suggest that the passage of investor protection laws is associated with a 4-7% reduction in firm leverage ratios. I find weak evidence that suggests the laws led to increases in dividend payments and firm size. I do not find evidence that the laws were associated with improvements in operating performance.