Document Type


Date of Degree

Summer 2014

Degree Name

PhD (Doctor of Philosophy)

Degree In

Business Administration

First Advisor

Erik Lie


This thesis consists of three essays and studies CEO compensation, asset sales and takeovers and investment under uncertainty in empirical corporate finance. The first essay is a joint work with Qianqian Huang, Feng Jiang and Erik lie, titled `The effect of labor unions on CEO compensation'. The second essay `. Union Concessions following Asset Sales and Takeovers' is a joint work with Erik Lie. The third essay is titled `The Effect of Systematic and Idiosyncratic Risk on Investment and R&D' and is sole-authored.

In the first essay, we document evidence that labor unions compel firms to curtail CEO compensation. First, we find that firms with strong unions pay their CEOs less. Further, firms curb CEO compensation, especially the part that is discretionary, prior to union contract negotiations. Finally, we report that curbing CEO compensation mitigates the chance of a labor strike, thus providing a rationale for firms to pay CEOs less when facing strong unions.

In the second essay, we document that the likelihood of asset sales increases with union wages. Furthermore, the acquiring firms gain significant concessions from the incumbent union following asset sales. Finally, the anticipation of union concessions helps explain the excess stock returns around asset sale announcements. We find no comparable effects for takeovers. We conclude that asset sales, but not takeovers, are partially motivated by the potential to extract concessions from unions.

Finally, in the third essay, in an attempt to shed some light on the puzzling positive sensitivity of investment to systematic volatility documented in Panousi and Papanikolaou (2012), we decompose systematic volatility into a firm's systematic risk exposure (beta) as well as the market and industry portfolio volatility. Surprisingly, we find a positive response of investment to a firm's systematic risk exposure. R&D expenditure is employed as an alternative form of investment. Our results show that idiosyncratic risk actually encourages firms to engage in R&D spending, in contrast with its depressing effect on capital expenditure; whereas systematic volatility depresses R&D in contrast with the positive sensitivity of capital expenditure to systematic volatility.




viii, 105 pages


Includes bibliographical references (pages 102-105).


Copyright 2014 Tingting Que