Empirical Compensation and Incentives
Sunday, Jan. 6, 2019 1:00 PM - 3:00 PM
- Chair: Efraim Benmelech, Northwestern University
Incentives and Competition in the Airline Industry
AbstractWe examine how performance changes at airlines in response to a change in executive incentives.
Airlines with executive bonuses contingent on on-time arrival do improve on-time performance.
Competitors on the same routes also improve their on-time performance, even when their executive bonuses are not contingent on on-time performance. We find limited evidence of strategic gaming such as carriers increasing scheduled flight times. Carriers also do not decrease the frequency of flights or the number of passengers to make it easier to be on-time, but they do slightly decrease fares. Our results suggest that incentives heighten competition in on-time performance, consistent with competition in strategic complements.
The Limits of Limited Liability: Evidence from Industrial Pollution
AbstractWe study how parent liability for subsidiary environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court case that strengthened limited liability protection for parent corporations. Using a difference-in-differences framework, we find that increased liability protection for parents leads to a 10% increase in toxic emissions by subsidiaries. This decision is also associated with abnormal returns of over 1% for parent firms with a relatively high exposure to the change in legal liability. We find evidence that the increase in pollution is driven by lower investment in abatement technologies rather than higher production. Cross-sectional tests suggest a risk-shifting motivation for these effects. Overall, our results highlight moral hazard problems associated with limited liability.
Import Penetration and Executive Compensation
AbstractWe examine the effects of Chinese import penetration on executive compensation of US firms. We find that import penetration reduces executives’ total compensation, stock grants, wealth-performance sensitivity, and opportunistic grant timing, suggesting that competition mitigates agency problems and the need for conventional alignment mechanisms. Furthermore, we find that import penetration increases option grants and option duration, thus incentivizing more innovation and risk-taking.
University of California-San Diego
- G3 - Corporate Finance and Governance